Price. Aaaaargh! The PRICE of a good obviously directly affects the demand for it. You don’t want to buy something that’s really expensive if you can avoid it, do you? As the PRICE of something goes up, the DEMAND for it goes down. There is direct correlation between the two.  (this means that they have a mutual relationship/connection!) If something is on sale or on offer (reduced price), the demand for it usually increases! This is a typical demand curve. We can see that the higher the price, the lower the quantity demanded. Shocking!

Income. Aaaaargh! People’s incomes also affect the demand for things. For example, during the recession () many people were unemployed, or almost definitely earning less. Therefore, the demand for luxury goods (ice cream, foreign holidays, new cars etc.) went down. In general, people with low incomes don’t normally buy a lot of these things. HOWEVER, at the end of the month (pay day! ) or when there’s an economic BOOM, the demand for more goods (especially luxury ones) goes up because people can afford them. Very wealthy people can afford them all year round.

Related goods. Aaaaargh! Related goods affecting demand can be COMPLIMENTS or SUBSTITUTES. COMPLIMENTS eg. If the demand for steak goes down, the demand for red wine that you eat with the steak will go down – there’s direct correlation between compliments (and substitutes)! SUBSTITUTES eg. If the price of Ben & Jerry’s ice cream goes up, less people will be able to afford it/want to spend the money on it, so less people will buy it. Therefore the demand for Ben & Jerry’s will go down, and the demand for more reasonably priced ice creams will go up.

(And) Tastes. Aaaaargh! The fashion has a HUGE impact on demand. When something is ‘in’ (like maxi dresses last summer), the demand is extremely high and there is an increase in consumer surplus, so the price can therefore go up almost exponentially, as people are willing to spend a higher amount of money to be ‘in’ (this is an example of an elastic good – Matthew will explain that!). Similarly, things also go out of popular tastes/fashion, therefore having a negative impact on demand (like maxi dresses when it’s coming into winter – no thanks). Consumer surplus then decreases and the price is generally reduced (eg. put on sale or on offer) to increase the demand again and get sales going!

Expectation. Aaaaargh! The expectation of demand has a HUGE impact. Christmas is a great example of this (it’s coming up to Christmas now – yay!). At this time of year, it is expected that demand for a lot of things, such as luxury goods (presents) and traditional foods such as turkey, will increase. This will drive suppliers to increase the price of these goods, as a higher demand results in a higher consumer surplus and thus at this time of year the prices of these things can go up in anticipation. This can also work when the demand of something is expected to decrease, such as luxury goods (presents) after Christmas. This expectation results in things such as the January sales, when things which are expected to have a lower demand are sold at a reduced price to attempt to increase the demand again. Expectations for goods can also sometimes go badly wrong. For example, ‘Furbie’ toys were a very popular gift for children last Christmas, and some would think that it would be fair to expect them to be popular again this year, and thus sell them at a high price. However, if the proper research isn’t done, it may be found that another, unexpected, toy has overtaken ‘Furbies’, then the demand will not be as high as originally thought and they will not be sold at the higher price. This could result on them going on sale before the end of the Christmas period, which isn’t a good look for the shop in question.