Taste

The more attractive a good is considered to be in the market, the greater the demand will be for that good. Companies often attempt to make a good more desirable to us through advertising, our tastes can also be affected by fashion, and our own previous experience of the good.

Substitute Goods

Goods which are perceived by the consumer to be alternatives to a product, are termed Substitute Goods. An example would be Gas Central Heating, which is a substitute good to Electric Central Heating. The demand for a product will be affected by the number, and price, of substitute goods.

If a substitute good's price was to fall well below that of a companies product, consumers may well switch to the substitute, thus reducing demand for the companies product. An additional factor in this relationship will be the consumers ability to switch products, which in our example of Central Heating can be seen to be far more difficult, than switching from coffee to tea. Hence the greater the difficulty of switching the smaller the effect of substitute goods on demand for a product, in the short term at least. Companies often attempt therefore to generate 'switching costs' which a consumer will incur if they attempt to switch to a substitute good.

Complementary Goods

Goods which are consumed together, are termed as Complementary Goods. An example would be Petrol and Cars. If the price of either good increases, the demand for both the good and its complementary good will fall.

For example if the price of Cars were to rise dramatically, less people would chose to buy and use cars, switching perhaps to public transport - trains perhaps !. It follows that under these circumstances the demand for the complementary good - Petrol - would also decrease.

Income

As a persons income rises they are increasingly able to purchase products, they were previously only willing to buy. Thus the demand for what we call Normal Goods increases with an increase in income levels in the market. However, demand for goods which are perceived to be inferior - Inferior Goods will decline as people become able to buy goods of a higher standard.

For example the 'Bargain Basic' range of products offered in Supermarkets, and targeted at people with low incomes, will see a fall in demand if income levels rise, enabling people to buy the normal good equivalent of the product.

Distribution of Income

It is often the case that income levels do not rise evenly across a nation, instead what is often seen is a redistribution of income, from perhaps the rich to the poor. If wealth were redistributed in this way, those on higher income levels would see their income levels reduce, and thus reduce their demand for Luxury Goods. Whilst those on lower incomes would, experience an increase in income, and thus increase demand for Normal Goods and reduce demand for Inferior Goods.

Expectations of future Price Changes

Just as an actual increase in the price of a product may reduce demand, so the expectation that prices are about to rise will increase demand, as people buy more now, in order to avoid paying a higher price latter.

This is often the case on Budget Day, when consumers rush fill their petrol tanks prior to an expected increase in taxation, and therefore the price, of fuel. The reverse is also true, in that an expectation that prices are about to fall, will decrease current demand, as consumers await the expected price reduction.