Determinants of demand

There are many factors other than price that can affect the level of quantity demanded. This defines demand function.

(i) Price of the Commodity :

There is an inverse relationship between the price of the commodity and the quantity demanded. It implies that lower the price of commodity, larger is the quantity demanded and vice-versa.

(ii) Income of the consumers :

Usually there is a direct relationship between the income of the consumer and his demand. i.e. as income rises his demand rises and vice-a-versa. The income demand relationship varies with the following three types of commodities :

Normal Goods: In such goods, demand increases with increase in income of the consumer. For eg. demands for television sets, refrigerators etc. Thus income effect is positive.

Inferior Goods: Inferior Goods are those goods whose demand decrease with an increase in consumes income. For e.g. food grains like Malze , etc. If the income rises demand for such goods to the consumers will fall. Thus income effect is negative.

Giffen goods: In case of Giffen goods the demand increases with an increase in price but it decreases with the rise in income. Thus income effect is negative.

(iii) Consumer’s Taste and Preference:

Taste and Preferences which depend on social customs, habit of the people, fashion, etc. largely influence the demand of a commodity.

(iv) Price of Related Goods:

Related Goods can be classified as substitute and complementary goods.

(v) Substitute Goods:

In case of such goods, if the price of any substitute of commodity rises, then the commodity concern will become relatively cheaper and its demand will rise. The demand for the commodity will fall if the price of the substitute falls. eg. If the price of coffee rises, the demand for tea will rise.

(vi) Complementary Goods:

In case of such goods like pen and ink with a fall in the price of one there will be a rise in demand for another and therefore the price of one commodity and demand for its complementary are inversely related.

(vii) Consumer’s Expectation:

If a consumer expect a rise in the price of a commodity in a near future, they will demand it more at present in anticipation of a further rise in price.

(viii) Size and Composition of Population:

Larger the population, larger is likely to be the no. of consumers. Besides the composition of population which refers to the children, adults, males, females, etc. in the population. The demographic profile will also influence the consumer demand.

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