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Determinants of Demand

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notes

Determinants of Demand : 

1) Price :

Price determines the demand for a commodity to a large extent. Consumers
prefer to purchase a product in large quantities when price of a product is less and they purchase a product in small quantities when price of a product is high.

2) Income :

Income of a consumer decides purchasing power which in turn influences
the demand for the product. Rise in income will lead to a rise in demand for the commodity and a fall in income will lead to a fall in demand for the commodity.

3) Prices of Substitute Goods :

If a substitute good is available at a lower price then people will demand cheaper substitute good than costly good. For example, if the price of sugar rises then demand for jaggery will rise.

4) Price of Complementary Goods :

Change in the price of one commodity would also affect the demand for other commodity. For example, car and fuel. If the price of fuel  rises, then demand for cars will fall.

5) Nature of product :

If a commodity is a necessity and its use is unavoidable, then its demand will continue to be the same irrespective of the corresponding price. For example, medicine to control blood pressure.


6) Size of population :

Larger the size of population, greater will be the demand for a commodity and smaller the size of population smaller will be the demand for a commodity.

7) Expectations about future prices :

If the consumer expects the price to fall in future, he will buy less in the present at the prevailing price. Similarly, if he expects the price to rise in future, he will buy more in the present at the prevailing price.

8) Advertisement :

Advertisement, sales promotion scheme and effective salesmanship tend to change the preferences of the consumers and lead to demand for many products. For example, cosmetics, tooth brush etc.


9) Tastes, Habits and Fashions :

Taste and habits of a consumer influence the demand for a commodity. If a consumer likes to eat chocolates or consume tea, he will  demand more of them. Similarly, when a new fashion hits the market, the consumer demands that particular type of commodity. If a commodity goes out of fashion then suddenly the demand for that product tends to fall.

10) Level of Taxation :

High rates of taxes on goods or services would increase the price of the goods or services. This, in turn would result in a decrease in demand for goods or services and vice-versa.

11) Other factors : 

1) Climatic conditions
2) Changes in technology
3) Government policy
4) Customs and traditions etc.

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