Determinants of Demand

DETERMINANTS OF DEMAND

i.   General factors

•         Change in the number of buyers

•           Change in consumer incomes Change in consumer tastes

•          Change in the prices of complementary and substitute goods Additional factors related to luxury goods and durables

•           Change in consumer expectations in future income

•         Change  in  consumer  expectations  of  future

prices Additional factors related to market demand

1.  Price of the commodity

The consumer will buy more of a commodity when its price declines and vice versa,because it increases his purchasing power. He can therefore buy more of it.Price and the Demand vary inversely.

2.  Income of the consumer

The consumer will buy more of a commodity when his income increases and viceVersa. Both demand and income of the consumer move in the same direction.It may be reverse for inferior goods here demand will increase with decrease in the income and vice-versa.

3.  Price of the related goods

When a change in the price of one commodity influences the demand of the other commodity and so the commodities are interrelated. These related commodities are of two types: substitutes and complements.

When the price of one commodity and the quantity demanded of other commodity are move is same direction, it is called as substitutes

When the price of one commodity and the quantity demanded of other commodity are move is opposite direction, it is called as complementary

4.     Taste and preferences

If the consumer taste and preferences are favour of a commodity results in greater demand, And if it against the commodity it results in smaller demand for the commodity.

5.     Additional factors such as expectation in income and prices

In case the consumer expects a higher income in future ,he spends more at present and thereby the demand for the good increases and vice versa.

Similarly if the consumer expects future prices of the good to increase he would rather like to buy the commodity now more than on later, This will increase the demand for the commodity.