The law of Demand
Effects of Changes in Non-price Factors
There are four main non-price factors that may impact demand. Changes in these non-price factors cause a shift in the entire demand curve to the left or to the right. An increase in demand will shift the curve to the right and a decrease in demand will shift the curve to the left.
When constructing diagrams, use the checklist below to ensure that you include all the necessary components of an economic model. Furthermore, when decribing your models in exams, you must outline the following:
If demand is increasing or decreasing.
The non-price fcator that has caused this change.
The direction that the curve will shift. (left or right)
Want your ATAR notes to empower over 77,000 students per year?
Join the Team.
Explanation and Exam Tips
Sign Up for Free to Read More
Get instant access to all content and subscribe to our weekly email list on study tips, opportunities and other free resources.
It only takes a minute...
The factor that influenced the change in demand can be identified as the ‘price for substitutes’ as well as consumers ‘tastes and preferences.’ The differing price and qualities of coffee forced buyer’s demand for ‘Brand One Coffee’ to decrease, therefore, shifiting the demand curve to the left.
This question is difficult as the prices mentioned may trick students into thinking that the price is the factor that shifts demand. However, this is not the case as it compares the prices of two brands as opposed to a change in price within the one company. Also, it is important to direct your exam answers to the company that the question asks for. This question asked for students to show the decreasing demand for ‘Brand One’s Coffee,’ however, it could have asked students to demonstrate the effect on demand for ‘Better Brand Coffee;’ changing the model and answer entirely. In short, it is important to read the question carefully!
Explanation and Exam Tips
Example Two Explanation
The non-price factor used in this question can be identified as ‘population size.’ Due to an increase in the number of consumers, there will an increase in demand for goods and services across the state as there is more buyers with more needs and wants, this will shift the dmand curve to the right.
In some exams, you will need to identity whether there will be a change in supply or demand or both. A simple way of doing this is by looking at the language used in the question; generally if it mentions buyers, the shift will be on the demand side and if the question states sellers, the shift will be on the supply side.