Determinants of Demand

The quantity demanded of a commodity depends upon the following factors,

  1. Price of the commodity,
  2. Prices of related goods,
  3. Income of the consumer,
  4. Taste and preferences of the consumer.
  5. Other factors includes population, distribution of income, expectation about the change in prices, stability etc.

We can write this in a simple mathematical form:

Dx= f (Px, Pg, P2,                                                Pn, Y, T)

Dx= —Quantity demanded of commodity X

Px= —Price of commodity X

Pg, P2, …………………….Pn — Price of related goods

Y — Income of the household

T — Tastes and preferences of the household.

1)   Change in price:

            One of the most important influencing factors is price. As per the law of demand price varies inversely with the quantity demanded of the commodity. A rise in price of a commodity will contract the demand for a commodity and vice versa.

2)   Price of the valuated goods:

Another important influencing factor is price of the related goods. The quantity demanded of a commodity depends upon the price of the related goods.

3)   Income of the consumer:

            It is another factor affecting demand there is a direct positive relationship between income and demand that means other things remaining same an increase in income of a consumer leads to increase in demand and vice-versa.

4)   Taste, habit and fashion:

            Demand is also affected by the habit and fashion, There is a direct relationship between taste, habit, fashion and demand. If the taste for anything increases, its demand will increase. Similarly the habit of anything increases. The demand of particular commodity increase the demand for new fashionable items increases than the old items.

5)   Population:

            Population is another factor affecting quantity demanded of a commodity. It has direct relation with quantity demanded that is increase in Population increases demanded that necessities of life so a change in Population may bring change in the nature of demand for various commodities.

6)   Season:

            The climate or weather or season demand. In winter, woolen cloth is consumer’s demand, while during hot summer days, is ice-cream is very much in demand.

7)   Future Expectation:

            The demand for a commodity also depends up on the expectation about future price. If it is expected a rise or fall in the price of a commodity accordingly the demand creases or increases although the present price is constant.

Besides these, other factors may include like size of population, distribution of income, expectation about the change in prices, etc.

 

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