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Chapter: Civil : Engineering Economics and Cost analysis : Demand and Schedule

The Various Determinats of Market Demand

i. Price of the product ii. Price of the related goods iii. Consumer income iv.Cons umer taste and preferences v. Advertisement expenditure vi.Consumer's exceptions vii. Demonstration effect viiiConsumer credit facility ix. Population of the country x. Distribution of National Income



i. Price of the product: The law of demand states that the quantity demanded of a product which its consumers users would like to buy per unit of time, increases when its price falls and decreases when its price increases other factors remaining constant.

ii. Price of the related goods: The demand for a commodity is also affected b y the changes in the price of its related goods. Related goods may be substitutes or complementary goods


iii. Consumer income: Income is the basic determinant of quantity of a product demanded since it determines the purchasing power o f the consumer. That is why higher current disposable incomes spend a larger amount on consumer goods and services than those with lower income.


iv.Cons umer taste and preferences: Taste and preferences generally depend on the life -style social customs religious value attached to a commodity, habit of the people, the general levels of living of the society a nd age and sex of the consumers taste and preferences. As a result, consumers reduce or give up the consumption of the some goods and add new ones to their consumption pattern


v. Advertisement expenditure: Advertisement costs are incurred with the objective of promoting sale of the product. Advertisement helps in increasing demand for the product.


vi.Consumer's exceptions: Consumers'exceptionsregarding thefutureprices incomesand supply position o f goods, etc pla y an important role in determining the demand for goods and

services in the short run.


vii. Demonstration effect: W hen new commodities or new models of existing one appear in the market rich people buy them first.

viiiConsumer credit facility: Availability of credit to the consumers from to the seller banks relation and friends, or from other source encourages the consumer to buy more that what the y is why consumers who can borrow more can consume more than those who cannot borrow. Credit facility mostly affects the demand for durable goods, particularly those which requires bulk payment at the time of purchase.


ix. Population of the country: The total domestic demand for a product of mass consumption depends also on the size of the population. Give n the price, per capita income taste and preference etc, the larger the population the larger and demand for a product. With an increase (or decrease) in the size of population and with the emplo yment percentage remaining the same demand for the product tends to increase (or decrease).

x. Distribution of National Income:   The level of national income is the basic determinant o f


the market demands for a product-the higher the national income, the higher the demand for all normal goods and services. A past from its level the distribution pattern of national income is also an important determinant of a product.


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Civil : Engineering Economics and Cost analysis : Demand and Schedule : The Various Determinats of Market Demand |

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