Question

Name the factors determining market demand

Explain the factors determining market demand for a commodity.

Answer 1

Factors determining the market demand of a commodity:

1. Own price of a good: Assuming that other things remain constant, an increase in the price of a good will decrease the demand for a good, and a decrease in the price of a good will increase the demand for a good. There is an inverse relationship between the price of a good and the demand for a good.
2. Price of other goods: Demand for a commodity is influenced by a change in the price of other goods. When the price of one good fall, it becomes cheaper in relation to another good. If there is an increase in the price of the substitute good coffee, then the demand curve for tea shifts to the right. On the other hand, if there is a decrease in the price of the substitute good coffee, the demand curve for tea shifts to the left even when its price is constant. If there is an increase in the price of a good, then the demand for another goodwill decline. So, the demand curve shifts parallel to the left. On the other hand, if there is a decrease in the price of a good, then the demand for another good will increase, and so, the demand curve shifts parallel to the right.
3. Income of consumers: A change in income causes a change in demand for good based on the variety of goods available in the market. There will be an increase in the demand for normal goods with a rise in income level. On the other hand, the demand will decrease for inferior goods with an increase in income.
4. Consumers' tastes and preferences: Assuming that other things remain constant, if consumers have more preference for one good than other goods, then the demand for that good will increase. On the other hand, if consumers have no preference for a good than other goods, then the demand for that good will decrease.
5. Population size: An increase or decrease in population size will influence the demand for goods in the market. There is a positive relationship between the size of the population and the demand for a good.