Explain with reason, whether you agree or disagree with the following statement
Price is the only determinant of demand
Price is the only factor that affects demand of a commodity.
No, we do not agree with the given statement. This is because there are various factors that determine demand other than price. The following are a few determinants:
- Income of the consumer- Change in the income of the consumer also affects the market demand for goods. The effect of the change in income on the market demand depends on the type of the good.
- Type of Good- The market demand for normal goods shares a positive relationship with the consumer's income. The market demand for inferior goods (such as coarse cereals) has a negative relationship with the consumer's income. The market demand for Giffen goods also has a negative relationship with the income.
- Consumer’s tastes and preferences- Consumers' tastes and preferences highly influence the demand for goods. Other things being constant, if all consumers prefer a commodity over another, then the market demand for that commodity increases and vice versa.
- Population size- The market demand for a commodity is also affected by the population size. Other things being equal, an increase in the population size increases the market demand for a commodity and vice-versa. This is because with the change in population size, the number of consumers in the market changes.