Factors determining demand

Factors determining demand:

1. Tastes and preferences of the consumer:

Demand for a commodity might change due to a modification in tastes, preferences and fashion. For illustration, the demand for trouser cloth and jeans has gone up due to transformation in fashion.

2. Income of the consumer:

Whenever the income of the consumer rises, more will be demanded. Thus, we can say that as income rises, other things being equivalent, the demand for a commodity as well increases. Comforts and luxuries belong to this group.

3. Price of substitutes:

Some goods can be replaced for other goods. For illustration, tea and coffee are replacements. When the price of coffee rises while the price of tea remains similar, there will be an increase in the demand for tea and reduction in the demand for coffee. The demand for replacements moves in conflicting direction.

4. Number of consumers:

Size of population of a country is a significant determinant of demand. For illustration, larger the population more will be the demand, for certain goods such as food grains, pulses and so on. Whenever the number of consumers rises, there will be bigger demand for goods.

5. Expectation of future price change:

When the consumer believes that the price of a commodity will increase in the future, he might purchase a larger quantity in the present. Assume that he expects the price to fall; he might defer few of his purchases to a future date.

6. Distribution of income:

Distribution of income affects expenditure pattern and therefore the demand for different goods. When the government tries redistribution of income to make it unbiased, the demand for luxuries will refuse and the demand for requirements of life will rise.

7. Climate and weather conditions:

Demand for a commodity might change due to a modification in climatic conditions. For illustration, during summer, demand for cool drinks, cotton clothes & air conditioners will raise. In winter, demand for woolen clothes raises.

8. State of business:

During boom, demand will enlarge and during depression demand will contract.

9.  Consumer Innovativeness:

Whenever the price of wheat flour or price of electricity cascades, the consumer recognizes new utilizations for the product. This creates new demand for the product.

 

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