What this lesson teaches
I can show how non-price factors shift a demand or supply curve and name those factors.
Syllabus 9570, 2.1.2(d). Demand and Supply Analysis and its Applications: Changes in non-price determinants and how they cause shifts in the demand/supply curve
Make a guess
Incomes rise across Singapore. What happens to demand for the cheapest brand of instant noodles?
- It rises, because people have more money to spend.
- Nothing changes, because noodles are a necessity.
- It may fall, if buyers see it as inferior.
Show the answer
It may fall, if buyers see it as inferior.
Higher incomes let some people switch to foods they prefer. For an inferior good, demand shifts left as income rises.
Income, tastes, related goods, population and expectations shift demand.
Demand shifts when something other than the good's own price changes how much buyers are willing and able to buy.
Income: when incomes rise, demand for normal goods rises. Demand for inferior goods falls, as people switch to things they prefer.
Related goods: if a substitute becomes dearer, demand for this good rises. If a complement becomes dearer, demand for this good falls.
Tastes, population and expectations also matter. Singapore's ageing population, for example, raises demand for eldercare and healthcare services year after year.
- Income
- Normal goods: demand rises with income. Inferior goods: demand falls.
- Related goods
- Dearer substitute raises demand; dearer complement lowers it.
- Others
- Tastes, population and expectations.
Normal, inferior, substitute, complement
Normal good
Demand rises with income, for example restaurant meals.
Inferior good
Demand falls as income rises, for example the cheapest instant noodles for some households.
Substitutes
Goods used instead of each other: Grab rides and taxis.
Complements
Goods used together: cars and petrol.
Worked example: Three changes in the market for private-hire rides
Think about the demand for private-hire car rides in Singapore. Take each change on its own.
- Household incomes rise. Rides are a normal good for most people, so demand rises: D shifts right.
- Taxi fares rise. Taxis are a substitute, so some passengers switch to private-hire rides: D shifts right.
- A new MRT line opens along a busy route. The MRT is a cheaper substitute, so some passengers switch away: D shifts left.
Watch out for this
Higher income always raises demand.
Only for normal goods. For inferior goods, such as the cheapest instant noodles for some households, demand can fall as income rises.
Check your understanding
For some students, second-hand textbooks are an inferior good. Their incomes fall. What happens to their demand for second-hand textbooks?
- Quantity demanded rises along the same curve.
- It falls: the demand curve shifts left.
- It rises: the demand curve shifts right.
Show the answer
It rises: the demand curve shifts right.
Right. For an inferior good, lower income raises demand as buyers switch away from the dearer new books.