Demand and Factors Affecting It
* Demand: demand is the quantity of a product or service that is wanted by the buyers. The quantity demanded resembles the amount of the product that people are willing to purchase are at a stated price. The relationship between demand and price can be shown through the law of demand.
Law of demand:
The law of demand states that customers are likely to purchase more of the good when the price is low and less of it when the price is high. In other words, price and quantity demanded move in opposite direction, if price goes up, demand goes down. And if price goes down, demand goes up.
Factors affecting the demand for a good:
* Price:
The price of the good itself is the first factor that affects the demand for a good. For goods that obey the law of demand, if the price rises the quantity demanded falls and if the price falls the quantity demanded rises. But for goods that do not obey the law of demand (such as snob goods, Giffen goods and goods affected by consumer’s expectations) when the price rises the quantity demanded rises along with it and if the price falls the quantity demanded falls alongside it as well. * Price of other goods:
The demand of a good will change as the price of complementary goods and substitute goods changes. An increase in the price of a complementary good leads to a fall in the demand of the named good, while a fall in the price of a complementary good leads to a rise in the demand of the names good.
However, a rise in the price of a substitute good leads to a rise in the demand of the stated product whilst a fall in the price of a substitute good leads to a fall in the demand of a stated product. * Level of income:
The percentage of income that is spent on a good is dependent on whether the good is a normal good or an inferior good.
If the good is a normal good, then a greater percentage of the income is spent on it as the income rises, while if the good is an inferior good then a lower percentage of the income
Law of demand:
The law of demand states that customers are likely to purchase more of the good when the price is low and less of it when the price is high. In other words, price and quantity demanded move in opposite direction, if price goes up, demand goes down. And if price goes down, demand goes up.
Factors affecting the demand for a good:
* Price:
The price of the good itself is the first factor that affects the demand for a good. For goods that obey the law of demand, if the price rises the quantity demanded falls and if the price falls the quantity demanded rises. But for goods that do not obey the law of demand (such as snob goods, Giffen goods and goods affected by consumer’s expectations) when the price rises the quantity demanded rises along with it and if the price falls the quantity demanded falls alongside it as well. * Price of other goods:
The demand of a good will change as the price of complementary goods and substitute goods changes. An increase in the price of a complementary good leads to a fall in the demand of the named good, while a fall in the price of a complementary good leads to a rise in the demand of the names good.
However, a rise in the price of a substitute good leads to a rise in the demand of the stated product whilst a fall in the price of a substitute good leads to a fall in the demand of a stated product. * Level of income:
The percentage of income that is spent on a good is dependent on whether the good is a normal good or an inferior good.
If the good is a normal good, then a greater percentage of the income is spent on it as the income rises, while if the good is an inferior good then a lower percentage of the income