Advertisements
Advertisements
Question
State the factors leading to fall in demand by an individual consumer
Advertisements
Solution
Factors affecting demand for a good by an individual:
1) Own price of the good: Assume that other things remaining 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 the 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 the 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 good will 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 the demand for a 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 for inferior goods will decrease with an increase in income
4) Consumers' tastes and preferences: Assume that other things remaining constant, if consumers have more preference for a good than other goods, then the demand for those goods will increase. On the other hand, if consumers have no preference for a good than other goods, then the demand for those goods 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.
