Question

What are the determinants of demand? Describe any five in detail.

Answer 1

Demand function shows how demand is related to its various determinants.

1) Own price of the commodity: Other things remaining constant, with the rise in own price of the commodity, its demand contracts and with the fall in price, the demand expands.

2) Income of the consumer: The demand for normal goods increases with the rise in consumer's income and vice-versa. On the other hand, the demand for inferior goods decreases with the rise in income of the consumer and vice-versa.

3) Tastes and preferences: Other things being equal, demand for those goods increases fr which consumers develop a strong tastes and preferences. On the contrary, if tastes and preferences towards a product fading, its demand will decrease.

4) Expectations: If the consumer expects a significant change in the availability of the concerned commodity in the near future, he may decide to change his present demand for the commodity.

5) Price of related goods: For substitute goods, increase in the price of one good, increases the demand for the other commodity and vice-versa like, tea and coffee. For complementary goods, increase in the price of one good, decreases the demand for the other commodity and vice-versa, like petrol and car.