Question

Explain two factors affecting the demand for a commodity other than its price.

Explain any four factors other than price affecting the demand for a commodity.

Answer 1

1. Consumers’ Expectations: Expectations regarding future prices, income, and the availability of goods play an important role in determining current-period demand, as goods can be stored or consumption postponed.
2. Consumer-Credit Facilities: If consumers can obtain credit facilities or borrow from banks, they may be tempted to purchase goods they could not otherwise afford. For instance, the demand for cars in India has increased partly because consumers can obtain bank loans to purchase cars. Credit facilities mostly affect the demand for expensive durable goods.

Answer 2

1. Consumers’ Expectations: Consumers’ expectations regarding future prices, income, and the availability of goods play an important role in determining current-period demand because goods can be stored or consumption postponed. For instance, if consumers expect a rise in the price of a commodity in the future, they would demand a greater amount of this commodity today with a view to avoiding purchasing it at a higher price in the future.
2. Consumer-Credit Facilities: If consumers can obtain credit facilities or borrow from banks, they may be tempted to purchase goods they could not otherwise afford. For instance, the demand for cars in India has increased partly because consumers can obtain bank loans to purchase cars. Credit facilities mostly affect the demand for expensive durable goods.
3. Demonstration Effect: The demonstration effect plays an important role in shaping the demand for a commodity. Demonstration effect refers to the tendency of a person to emulate the consumption style of other persons, such as his friends, neighbours, etc. For instance, demand for luxury cars and high-end mobile phones has increased in recent years, partly because people seek to emulate others’ consumption patterns.
4. Size and Composition of Population: Market demand for a commodity depends on the population’s size and composition. A country’s population determines the number of consumers. The larger the population, the greater the number of consumers. An increase in the size of the population will increase the demand for a commodity by increasing the number of consumers and vice versa.
5. Distribution of Income: The distribution of income in the country also affects the demand for goods. If a country's income distribution is unequal, the rich will have greater purchasing power. Therefore, there will be greater demand for luxury goods such as cars and LED televisions. On the other hand, if the income is evenly distributed, there will be less demand for luxury goods and more demand for essential goods (necessities).
6. Climatic Factors: Demand for different goods depends on climatic conditions, as different goods are required for different climates. For instance, demand for ice, fans, air conditioners, cold drinks, and cotton clothing increases in summer. Likewise, in winter, demand for heaters, blowers, hot drinks, woolen clothing, and similar items increases.
7. Government Policy: Government economic policy also influences commodity demand. If the government imposes taxes on various commodities in the form of GST, excise duties, etc., the prices of these commodities will increase. As a result, demand for these commodities will fall. But, on the other hand, if the government incurs more expenditure on the construction of roads, bridges, and setting up industries, etc., the demand for the goods needed for construction will increase.