Question

Explain any four factors affecting the demand for a commodity.

Mention any four factors other than the price of the commodity which affect the demand for that commodity.

Give factors on which demand depends.

Answer 1

Factors Affecting the Demand for a Commodity:

1. Own Price of the Commodity: Price is the most important factor that influences a consumer's decision to purchase a particular commodity. A lower price of a commodity attracts more consumers, and a higher price restricts their number.
2. Income of the Consumer: Income of the consumer is a key factor affecting the demand for a commodity. As income rises, people are likely to buy more of a normal commodity and vice versa. But in the case of inferior goods, an increase in income reduces the demand because the consumer shifts his consumption to superior goods.
3. Price of Related Goods: Demand for a commodity is also affected by changes in prices of related goods. For example, demand for cars not only depends upon their own price (i.e., the price of a car) but also depends on the price of petrol or diesel.
4. Tastes and Preferences: Other things being equal, demand for those goods increases for which consumers develop strong tastes and preferences. Contrary to it, if tastes or preferences for a product is fading (decreasing), its demand will decrease.
5. Distribution of Wealth: The distribution of wealth in society influences the demand for commodities. Equitable income distribution leads to increased demand, while inequality leads to decreased demand.
6. Government Policy: Government policies can influence commodity demand. The government's levies on commodities raise their prices. As a result, demand decreases.
7. State of Business: Commodity demand is influenced by local economic conditions. When a country has a boom, market demand rises, and vice versa.
8. Population Growth: Population expansion influences commodities demand. Population growth drives up demand for goods, while population decline reduces demand for the same commodities. Moreover, the composition of the population influences demand.
9. Discoveries: The introduction of a new product may reduce demand for the old product. For example, plastic milk bags have reduced the demand for milk bags.
10. Money Supply: The purchasing power of money depends on its supply. Increased money supply leads to higher purchasing power, and vice versa.