The nonprice determinants of demand are the tastes of the group demanding the good or service, the size of the group demanding the good or service, the income and wealth of the group demanding the good or service, the prices of other goods and services, and expectations about future prices or income.
61 Nearly everything that affects demand does so by working through one of these determinants. Weather, for example, may affect demand for bread by changing tastes. People may eat more cold sandwiches instead of hot meals in warmer weather. Economists study demand by holding all but one of these determinants constant and identifying what happens when that one changes. Changes in the ceteris paribus conditions change the demand for the good or service . Economists are careful to distinguish clearly between movements along a demand curve and changes (or shifts) of the curve itself. Movements along the curve are changes in quantity demanded , caused solely by a change in the price of the good. When the price of bread goes up, fewer loaves are demanded—a change in quantity demanded. Changes (or shifts) of the curve are changes in demand caused by changes in any of the ceteris paribus conditions. When the weather gets hot or population increases, more loaves are demanded at every possible price—a change in demand that causes the demand curve to shift. Did I Get This : 64. Ceteris paribus , as applied in demand theory, means holding constant all factors that affect demand except one. Correct. When formulating a theory, ceteris paribus means “maintaining all factors constant.” 65. Ceteris paribus , as the price of a good or service increases, people will buy less of it. Correct. According to the law of demand, if the price increases, people will purchase less of a good. 66. A change in any of the ceteris paribus conditions for demand leads to a shift of the demand curve. Correct . A ceteris paribus condition is a factor such as taste, income, or expectation, that affects demand, causing the curve to shift. Tastes How do changes in the ceteris paribus conditions affect the market demand for a good? Suppose the top health magazine publishes an article touting the benefits of a high-fiber diet, causing people’s interest in high-fiber diets to increase. The increase in demand causes the demand curve to shift to the right, from D 0 to D 1 in Figure 3.3. An increase in demand means that at every price, consumers demand a larger quantity than they did before. The opposite would occur if tastes changed away from bread. Such a change in tastes would cause a decrease in demand, represented by a shift from D 0 to D 2 . A decrease in demand means that at every price, consumers demand a smaller quantity than before. Figure 3.3: Effects of changes in the ceteris paribus conditions on demand
62 If a change causes more of a good to be demanded at every price, the demand curve will shift to the right, as from D 0 to D 1 . A change that causes less to be demanded at every price causes a shift to the left, as from D 0 to D 2 .