Question

What is meant by cross demand? Explain any four factors which determine demand in the market.

Answer 1

Cross demand from the economic point of view measures the responsiveness of the change in quantity demand towards the change in price of another commodity.

Four factors which determine demand in the market are:-
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) 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.