Factors determining demand

Factors determining demand

1. Tastes and preferences of the consumer

Demand for a commodity may change due to a change in tastes, preferences and fashion. For example, the demand for dhoties has come down and demand for trouser cloth and jeans has gone up due to change in fashion.

2. Income of the consumer

When the income of the consumer increases, more will be demanded. Therefore, we can say that as income increases, other things being equal, the demand for a commodity also increases. Comforts and luxuries belong to this category.

3. Price of substitutes

Some goods can be substituted for other goods. For example, tea and coffee are substitutes. If the price of coffee increases while the price of tea remains the same, there will be increase in the demand for tea and decrease in the demand for coffee. The demand for substitutes moves in the opposite direction.

4. Number of consumers

Size of population of a country is an important determinant of demand. For instance, larger the population, more will be the demand, for certain goods like food grains, and pulses etc. When the number of consumers increases, there will be greater demand for goods.

5. Expectation of future price change

If the consumer believes that the price of a commodity will rise in the future, he may buy a larger quantity in the present. Suppose he expects the price to fall, he may defer some of his purchases to a future date.

6. Distribution of income

Distribution of income affects consumption pattern and hence the demand for various goods. If the government attempts redistribution of income to make it equitable, the demand for luxuries will decline and the demand for necessities of life will increase.

7. Climate and weather conditions

Demand for a commodity may change due to a change in climatic conditions. For example, during summer, demand for cool drinks, cotton clothes and air conditioners will increase. In winter, demand for woollen clothes increases.

8. State of business

During boom, demand will expand and during depression demand will contract.

9. Consumer Innovativeness

When the price of wheat flour or price of electricity falls, the consumer identifies new uses for the product. It creates new demand for the product.