Determinants of Demand

The demand for a commodity depends on various factors. These factors are called determinants of demand. The main determinants are:

1. Price of the Good

• The demand for a product primarily depends on its own price.

• When price increases, the demand decreases.

• When price decreases, the demand increases.

• This follows the Law of Demand, showing an inverse relationship between price and demand.

2. Prices of Substitute Goods

• Substitute goods are those that can replace each other, like tea and coffee.

• If the price of a substitute (e.g., coffee) falls, its demand increases, and the demand for the original good (e.g., tea) falls.

• Thus, demand for a good and the price of its substitute are positively related.

3. Prices of Complementary Goods

• Complementary goods are used together, like cars and petrol.

• If the price of a complement (e.g., petrol) rises, the demand for both petrol and cars will fall.

• So, demand for a good and the price of its complement are negatively related.

4. Income of the Consumer

• For normal goods: When income increases, demand increases; when income falls, demand falls.

• For inferior goods: When income increases, demand decreases, and vice versa.

5. Tastes and Preferences

• Changes in consumer tastes and preferences directly affect demand.

• If a product becomes more fashionable or preferred, its demand rises.

6. Population

• A larger population leads to higher demand for goods and services.

• A smaller population results in lower demand.

7. Climate

• Demand also depends on climatic conditions.

  • In hot weather, demand for cold drinks rises.

  • In rainy seasons, demand for umbrellas increases.