What are the determinants of demand ?

Demand Analysis is extremely important for many economic decisions.

Demand for a product depends on various other factors.

These factors are called the determinants of demand.

When the relationship op demand is studied with one particular determinant, the other determinants are assumed to be constant.

The following are the different determinants of demand :

1) The Price of the commodity :

Other things being equal, the demand for a commodity depends upon its own price.

This is the law of demand and describes the inverse proportion between the quantity demanded and its own price. More quantities of the commodity are demanded at a lower price.

2) The Prices of Related Goods :

The price of related goods like complementary goods and substitutes also influence the demand of a particular commodity.

In case of complementary goods like car an petrol, changes in the price of one commodity inversely affects the demand for the other commodity. i.e. if the price of the car rises, the demand for petrol falls as the demand for car falls due to price rise.

In case of substitutes like tea and coffee, changes in the price of one commodity directly affects the demand for the other commodity i.e. if the price of tea rises, the demand for coffee increases due to decrease in demand for tea due to price rise.

3) The income of Consumers :

the consumer's ability to pay for a particular product depends upon his income.

Generally, when the income of the consumer increase, the demand for goods also increases. It also depends upon the quality of goods.

The demand for superior quality goods increases with increase in income whereas the demand for inferior quality goods decreases when income increases.

4) Tastes and preferences of consumers :

Consumer's tastes and preferences are important determinants of demand. A change in consumer's tastes and preferences will have direct effect on the demand for those commodities. For instance, if a product becomes obsolete or out of style, its demand decreases. Similarly, if a product becomes popular, its demand increases.

5) Expectation About future Prices :

Expectations regarding future prices also influences the demand for a particular commodity.

If the price of a particular commodity is expected to rise in the future, the present demand for that commodity increases. Similarly if the consumer expects a shortage of a particular commodity in future, the present demand increases.

6) Expectation About Future Income :

Expectation regarding the future income of the consumer also influences the demand.

If the consumer expects an increase in his income in the near future, his spending capacity increases and this leads to an increase in his demand.

7) Population :

The total demand for goods also depends upon the total no. of consumers. Naturally, greater number of consumers implies greater demand as a whole.

In fact, demand for almost all the products increases over a period of time due to population growth.

Moreover, the structure of population also influences the demand for certain commodities in a peculiar way.

Taxation :

Progressively higher tax rates would decrease the demand for goods in general. Also, highly taxed commodities will have a relatively lower demand.

9) Inventions / innovations :

Inventions and innovations have their influence on the demand for existing products. Introduction of new products or substitutes of existing products lead to a decrease in the demand for existing products.

10) Advertising :

Advertising has a great impact on the demand for existing products. Since advertisement makes the consumers aware of the various products available in the market and their features, consumers are persuaded to indulge in purchasing these products. Hence the demand for these products increases.

Thus, various factors determine the demand for products.

These factors along with social customs, traditions, beliefs, etc. have an impact on the demand for various products.