Question

Explain any three factors that affect the demand for a commodity.

Explain five factors that affect the demand for a commodity.

Answer 1

Three determinants of demand:

• Price of the commodity: With constant money income for the consumer and an increase in the price of a commodity, the purchasing power of the consumer reduces and vice versa. Thus, the consumer purchases less of a commodity with an increase in its price.
• Income of the consumer: Other things remaining constant, an increase in the individual income would mean an increase in the purchasing power of the consumer. Thus, the consumer can purchase commodities with an increased income.
• Climatic condition: During the winter season, the demand for woollen clothes increases. During the summer season, the demand for cotton clothes increases. Hence, the climatic condition affects market demand for a commodity.

Answer 2

Primary factors that affect the demand for a commodity:

1. Price of the Commodity: According to the Law of Demand, when the price of a commodity rises, the quantity demanded decreases, and vice versa, providing all other factors remain constant.
2. Income of the Consumer: For normal goods, an increase in consumer income leads to higher demand, whereas for inferior goods, a gain in income actually reduces demand.
3. Prices of Related Goods: Demand is dependent on substitute goods (where a price rise in one raises demand for the other, like tea and coffee) and complementary goods (where a price rise in one decreases demand for the other, like cars and petrol).
4. Tastes and Preferences: Favorable changes in customer preferences, fashion trends, or seasonal demands directly enhance the demand for a commodity; unfavorable shifts reduce it.
5. Future Price Expectations: If customers expect the price of a commodity to rise dramatically in the near future, they will boost their current demand in order to stock up before the hike.