Real Estate Council of Alberta Fundamentals Practice Exam

Which of the following is NOT a non-price determinant of demand?

1. Change in consumer preferences

2. Changes in consumer income

3. Cost of production

4. Changes in the number of buyers

The correct answer is: Cost of production

The choice of "Cost of production" as the correct answer highlights an important distinction in the economics of supply and demand. Non-price determinants of demand refer to factors that can influence the demand for a good or service without altering its price. These determinants include consumer preferences, income levels, and the number of buyers in the market. - Changes in consumer preferences can sway people’s desire for certain products. For example, if a new trend makes electric cars more desirable, demand will increase, irrespective of their price. - Changes in consumer income affect purchasing power and therefore the overall demand for goods. If incomes rise, consumers may buy more products at any given price, leading to increased demand. - Changes in the number of buyers directly correlate to demand; more buyers in the market generally lead to higher demand for goods, regardless of their prices. In contrast, "Cost of production" pertains to the supply side of the market. It affects producers' willingness and ability to supply goods at various price levels, but it does not directly influence how much consumers wish to buy at those prices. So, while production costs might affect overall market supply, they do not function as a determinant of consumer demand directly. This understanding is essential in differentiating between demand and supply-side factors