Dec 18, 2019

Determinants of Demand

Determinants of Demand

The following are the determinants of demand.


Price of the Commodity

According to the law of demand if the price increases then demand falls and price decreases then demand rise that means price and demand are inversely proportional to each other.as we all know that wants are unlimited when an income of person increases his expenditure capacity also increases which also increase the demand but its very essential to maintain the appropriate price of the commodity that the buyer should think that the price is kept accordingly. It happens because of income and substitution effects and its very important aspect in determinants of demand.

Eg: if the price of the 5$ pen is increased then there is a decrease in its demand because people tend to shift from this product as they have an alternative available.

The income of the Consumer

this is one of the aspects of determinants of demand. Demand is also influenced by the income of the consumer. In drawing the demand curve or the demand schedule for the good we take the income of the people as given and constant, When there is a rise in the income demand increases and then the whole demand curve is shifted towards the upward side. the greater income means the greater purchasing power therefore when the income of the people increases they afford to buy more due to that increase in the income have a positive impact on demand.  the consumer has more income he will buy more and if he has less income so he will obviously prefer less to buy. The high-income consumer has more purchasing power so that he can increase the demand that's why this is one of the important determinants of demand.

Eg.When because of drought in a year the agriculture production greatly falls due to the income of the farmers also declined. As a result of the decline in the income of the farmers, they will demand less Cotton and other manufactured product like electronics, vehicles and other essential products.

Taste and preference

Consumers' tastes and preference are also considered as important determinant of demand. A good for which consumers taste and preference is greater its demand would be large and its demand curve will lie at a higher level. the change in demand for various goods occur due to the change in fashion and also due to the pressure made by advertisers and marketing teams to motivate the customer to have a particular preference for there product. When certain goods go out of fashion then sometimes people's taste no longer remain favorable for them the demand for them decreases.  if consumers or end-user have more preference for any commodity then automatically his demand will increase and vice versa.

Eg. If a person likes chocolate and if the price of that product increases even then he think of buying that chocolate because of special preference.

Price of Similar goods

Similar or substitute goods are known as related goods. Price of such good is also considered an important determinant of demand. The demand for the product is also a motivated price of substitutes and complementary goods. When the demand for a product is full filed by alternative similar goods then these goods are called substitutes. when the price of substitutes or related goods changes then the demand curve changes its position it changes either upward or downward depending on the situation.

eg.when the price of the tea and the income of the people remain the same but the price of the coffee falls the consumer will demand less of the tea than before because Tea and coffee are a very close substitute for each other.

eg.If the price of the milk falls the demand for the sugar will considerably affected. If people take more milk then they will definitely consume more sugar so the demand for the sugar is also increased.

eg. Coca Cola and Pepsi if the price of one commodity is decreases then the demand for that commodity is increasing. 

Advertisement and Marketing

Taste and preference of the consumer can be changed by the use of appropriate marketing and sales strategies. Information about the product such as the availability of the product, advantages of the product over the competitor's product. this kind of strategy helps to increase the demand for the product so that this is also one of the important determinants of demand. Advertisement is given in various medias such as newspapers, social media, tweeter, radio, TV, etc. Advertisement used to influence people about the particular product or service of they can convince the buyer with the help of marketing then there is an increase in the demand of that particular product so that it is also one of the important determinants of demand.

Consumer Expectation

Consumer expectation is considered to be an important determinant of demand. If the consumer expects a hike in prices he may prefer to buy more quantity of that particular commodity and vice versa.
Similarly, the Expectation of rising income may force him to increase his current consumption.

Eg.if government announces that from tomorrow the price of XYZ commodity is increasing then people tend to buy XYZ commodity in advance.


The number of Consumer in Market

The greater the number of a consumer of goods the greater the market demand for it.the factors on which number of consumers depend if consumer substitute one good for another, then the number of consumer for the good which has been substituted by other will decline and for the goods which have been used in the place of others, the number of consumers will increase. when the seller is able to find the new market for his product than the consumer for that product increases. Growth of population is an important determinant of demand. If the population increases the demand for the commodities also increases as the number of buyers are increasing.

eg. India and China have the highest population among the other nations due to that the Xiaomi mobile brand has maximum users of there phone hence demand will be affected by the population.

Weather Condition

Weather condition also affect the demand as in summer season demand for the cooler, AC's, Fridge and cold drinks increases similarly in the rainy season the demand for raincoat, umbrella increases so weather or climate condition plays a crucial role in the determinants of demand.

Tax rate

Demand is also affected by the tax rate if the government increases the direct tax on a particular product it is found that there is a decrease in its demand. so that the companies try to reduce the tax on their product by implementing their plants in the countries where tax rates are low so its a very important determinant of demand. 

Availability of Credit

One of the most considerable determinants of demand is credit availability the purchasing power of the consumer is highly affected by the credit availability is their availability of cheap credit the buyer tends to buy more quantity of product.

If you have any question or you need an answer for any query you can comment in the comment box and I will try to answer all the question if you like my post please do the valuable reaction it helps me to do more work and motivates me to write more posts thank you.


Demand 

The demand for the commodity is consumers' desire to have it for which he is willing and able to pay the money.in economics demand considered as the desire and purchasing power of the person who wants to buy something if he can pay for that then this is considered as the demand.


Law of Demand

Law of demand state that when there is an increase in the price of commodity then there is a decrease in the demand and vice versa





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