Factors Affecting Demand
According to the law of demand when the price of a commodity increases the demand will decrease and vice versa. It states that price is the main factor that affects the demand for any product, though there are lots of many other factors. These other factors directly/ indirectly affect the demand. If these factor changes, demand also changes. This means these factors determine demand for a commodity on the following grounds. •
Price of the Commodity: The quantity demanded of a commodity is greatly influenced by the price of that commodity. A rise in the price of the commodity will lower the demand of that commodity and vice versa. The price is the most important factor that determines the demand of the product. •
Taste and Preferences of the customers: Changes in consumer’s taste and preferences brings a change in demand. So, taste and preferences is important determinant of demand. For example, if taste of a tea increases in comparison of coffee, the demand of tea increases and coffee decreases and vice versa. And in the hot season the taste of consumer will change and they prefer cold drinks rather than hot beverage like tea and coffee. •
Changes in price of Related goods: There are two types of related goods i.e. substitutes goods and compliments goods. Both these goods influence the quantity demand for the product. For example, we can take the Coke and Pepsi as substitute goods, if the price of Coke rise up then the demand for Pepsi will also increase and vice versa. •
Changes in Consumer’s Income: An increase in consumer’s income leads to increase in the demands of various commodities (assuming that their prices remain same). So, income is another important factor affecting demand. As income rises people buy more goods even when there is no changes in some respect. •
Distribution of Income: Distribution of income also influence demand for the product. If the national income is distributed more equally, the society’s consumption...
Please join StudyMode to read the full document