Determinants of Demand - Market Demand Analysis, Business Economics & Finance Video Lecture | Business Economics & Finance - B Com

in this third and final lesson on our
introduction to demand the law of demand
and the determinants of demand we're
going to outline some of the specific
factors that can cause a shift in the
demand for a particular good you'll
recall from our earlier lesson that when
the demand curve shifts it is moving
either to the right or to the left
causing the quantity demanded by
consumers to increase at every price as
in the case of a shift from d1 to d2 or
causing the quantities demanded by
consumers to decrease at every price as
in the case of a shift from d1 to d3
let's outline some of the factors that
can cause the demand curve for a
particular good to actually shift I like
to use an acronym to help remember the
different determinants of demand the
acronym goes like this it starts with a
T then there's an O then an e then an I
and then an S and another s let's go
through each of these letters and learn
how it helps us to understand the
factors that can cause a shift in the
demand for a good the T stands for
tastes of consumers this is a very
simple concept if a good becomes more
popular among consumers demand increases
and if it becomes less popular demand
decreases so what can effect the
popularity of a good let's look at candy
for example one way that demand for
candy can increase because of a change
in tastes is if the flavors become
better actually there's better quality
candy or if there's better marketing or
advertising by candy firms that appeals
to young people they would therefore
demand more candy at every price in fact
the main purpose of advertising is to
increase demand for products that
shouldn't be a big surprise advertising
makes products more appealing to
consumers and should cause the demand to
increase this of course means more sales
at every price businesses can sell more
of their output without having to lower
the prices if they can increase the
demand
through advertising so the tastes of
consumers is one of the determinants of
demand the onr acronym stands for other
related goods prices this could refer to
substitutes or complements I'm going to
add a couple bullet points here a
substitute is a good that could be
consumed instead of the good in question
so what happens if a substitutes price
Falls if a if a good that you could
consume instead of your favorite candy
got cheaper you would consume less of
your favorite candy at every price so if
a substitutes price Falls demand
decreases for the good in question if a
substitutes price rises for example if I
like butterfingers and Mars bars and
Mars bars get more expensive what
happens to my demand for butterfingers
well clearly if the substitute is now
more expensive I'll demand more so an
increase in the price of a substitute
would cause a shift from d1 to d2 a
decrease in the price of a substitute
would cause a shift from d1 to d3
complementary goods what are
complementary goods these are goods that
are often consumed together with the
good in question classic examples are
hotdogs and hot dog buns ice cream and
ice cream cones charcoal and charcoal
grills basketballs and basketball shoes
skis and ski poles these are goods that
are almost always used in conjunction
with one another so what happens if they
complement price Falls if hotdogs get
cheaper what will happen to demand for
hot dog buns that seems pretty easy
demand increases if the price of one
good gets cheaper I will consume more of
the cheaper good but also more of the
goods complement if a compliment gets
more expensive though what happens to
demand for the good in question
well if hotdogs get more expensive
you're going to consume fewer hotdogs of
course that's the law of demand but
you'll also demand less hot dog buns
even if the price of hot dog buns
doesn't change so demand decreases it's
very important that you understand and
are able to give examples of the
relationships between the price of
related Goods and the demand for the
good in question it's not always the
same if substitute prices Falls demand
decreases but if complements prices
Falls demand increases and vice versa
and it's also useful for you to have
some examples of mine so keep in mind
some of the examples that I gave you
today hot dogs and hot dog buns ice
cream and ice cream cones basketballs
and basketball shoes skis and ski boots
these are the types of goods that are
always consumed together the e and our
acronym stands for the expectations of
future prices this one's pretty
straightforward if consumers expect the
price to rise in the future demand
increases today so this is considered a
non-price determinants of demand because
we're not talking about what happens
when the price of candy changes today if
the price of candy were expected to go
up in the future it would be normal for
consumers to demand more of it today and
of course the idea is you're going to
buy it while it's cheap so that you
don't have to pay the higher price in
the future and the inverse of this is
true as well if consumers expect price
to fall in the future demand decreases
today this is because consumers will
postpone their consumption of the good
until the price is lower in the future
so the expectations of future prices is
an important determinant of demand for a
good today let's move on to the eye in
our acronym i stands for incomes of
consumers this one's pretty
straightforward if consumers income rise
demand increases for normal goods we'll
define what a normal good is here in
just a minute and decreases for inferior
goods
now inferior and normal do not refer to
the quality of a good necessarily rather
they refer to the nature of a good and
inferior good has an inverse
relationship between consumers incomes
and demand what are some examples of
goods the consumers might buy less of
when their incomes rise and more of when
their incomes fall sometimes fast food
is considered inferior good again not
because of the quality of the food
itself but because there's plenty of
evidence that when people's incomes are
falling they'll tend to consume more
fast food and fewer restaurant meals
some other examples of inferior goods
are off-brand toiletries think about
your toothpaste you could go to the
store and buy the most expensive
brand-name toothpaste on the Shelf you
might do that if your income is rising
and you feel more confident you want to
consume more of that normal good on the
other hand if your incomes falling you
still need to buy toothpaste you might
not buy the most trendy expensive brand
you might buy off-brand toothpaste
instead there are plenty of examples of
goods that consumers actually buy more
of when their incomes fall and less of
when their incomes rise however not all
goods are like this of course there are
normal goods these have a direct
relationship between income and demand
the important thing here is that you
know that a change in consumers incomes
will affect the demand for most goods
either positively or negatively
depending on whether the good is a
normal good or an inferior good the s in
our acronym TOA s' stands for the size
of the market in other words the number
of consumers recall from the first
lesson in this series that my survey of
my own students was of 68 students as
you can see over here we only had 68
responses and that gave us a demand for
candy that looks like the line you see
here but what if I surveyed a hundred
students or 150 students or what if I'd
only surveyed 30 students well it
shouldn't be a surprise that an increase
in the number of consumers will cause
the demand to increase and a decrease in
the number of consumers would cause the
demand to decrease this is quite
intuitive and straightforward so more
consumers lead to an increase in demand
fewer consumers lead to a decrease in
demand so we've got our determinants of
demand here there's one more to mention
although this one is not necessarily
specific determinate of demand rather it
is just a basic concept for you to keep
in mind and that is that there might be
some special circumstances that affect
demand for different Goods a simple
example of that could be the weather and
our market for candy here
perhaps when the weather is particularly
hot cold or frozen candies might be in
greater demand and chocolates might be
in less demand because chocolate tends
to melt in the heat weather could be a
special circumstance that affects the
demand for different types of Goods
different factors that affect consumer
behavior drive the demands for different
Goods that's not a surprise there are
all sorts of variables that could cause
demand to increase or decrease that are
not in one of the categories that you
see here but the categories you see here
tastes and preferences of consumers the
price of other related goods the
expectations of future prices the
incomes of consumers and the number of
consumers or the size of the market are
all variables that can cause demand for
different goods to increase or decrease
it's important that you are able to
distinguish between substitutes and
complements when discussing the effect
of a change in the price of other goods
knowing that if a substitutes price
Falls demand decreases and if a
complements price Falls demand increases
have examples in mind as well the other
important distinction is when talking
about how a change in income affects
demand so we need to be able to
stingless between inferior Goods and
normal Goods and you must know that when
incomes fall demand for inferior Goods
rise and vice versa I think comes rise
demand for inferior Goods Falls if
incomes fall demand for normal Goods
decreases and if incomes rise demand for
normal Goods increases so that wraps up
our lesson introducing demand the law of
demand and the determinants of demand in
the last three lessons we have derived
the demand curve using data from a
survey that I gave to my own students
we've examined the relationship between
a Goods price and the quantity demanded
which is inverse and we've distinguished
between a movement along the demand
curve which results from a change in the
price of a good when nothing else
changes that is ceteris paribus and a
shift in the demand curve which occurs
when a non-price determinants of demand
changes the useful acronym for
remembering those non-price determinants
of demand is t OE i SS or TOA s-- each
of these letters stands for one of the
non-price determinants of demand that
can cause demand for goods either
increase and shift to the right or
decrease and shift to the left as we see
here
here we go one step back