10 DETERMINANTS OF DEMAND

Demand refers to the number of goods and services that a consumer is willing, able and ready to purchase at a particular price and given period.

Demand is influenced by certain factors, which are called determinants of demand.

More appropriately, determinants of demand are factors that can affect or determine the demand for goods and services in a market.

The following are 11 determinants of demand:

1. Price of the commodity: As per the law of demand, the higher the price, the lower the quantity demanded; the lower the price, the higher the quantity demanded, ceteris paribus.

However, the responsiveness of quantity demanded to changes in price can only be determined through the price elasticity of demand

2. Consumer income and normal goods: Normal goods are goods whose demand is directly proportional to income.

This means, that as income rises, the demand for them rises and as income falls, the demand for them falls as well.

Normal goods usually have a positive income elasticity of demand

3. Consumer income and inferior goods: Inferior goods are those whose demand is inversely proportional to their price.

This means, that as income rises, the demand for them falls and as income falls, the demand for them rises.

Inferior goods usually have a negative income elasticity of demand.

4. Price of Substitute goods: These are goods that can be used in place of another.

An example is a margarine and butter. If the price of margarine increases, the demand for butter will increase and vice versa.

This, Substitute goods have a positive cross-price elasticity of demand

5. Price of complementary goods: Complementary goods are goods that enhance the satisfaction gotten from each other.

An example is a paint and paintbrush.  As the price of paint increases, the demand for paintbrushes decreases and vice versa.

As a result, Complimentary goods have a negative cross-price elasticity of demand.

6. Consumer expectation about future prices: if Consumers anticipate high prices shortly, they may stock up on more goods now to avoid paying higher prices later.

Conversely, if consumers expect low prices shortly, they may decrease their demand now to avail the opportunity of purchasing at a low price in the future.

7. Number of buyers in the market: The demand for goods and services is also affected by the number of buyers and sellers in the market.

All things being equal, the higher the number of buyers, the higher the demand; the lower the number of buyers, the lower the demand.

8. Consumer taste and preference: The demand for any goods and services is to a large extent affected by consumer taste and preference.

If consumer preference or taste changes in favour of a good, the demand for such a good will increase.

On the other hand, an unfavourable change in the taste and preference of consumers toward goods would decrease the demand for such goods.

Indeed, many companies engage in large advertising in a bid to encourage favourable changes in consumer taste and preference 

9. Government taxation policy: An increase in a commodity tax, would increase the price of the commodity, thereby reducing its demand.

Conversely, a decrease in a commodity tax would decrease the price of the commodity, thereby increasing its demand

10. Season: Some products are seasonal because they are only in demand during a specific time of year.

For example, people tend to purchase ice cream in the summer season than in the winter season.

This means the demand for ice cream will be rise during summer and fall during winter

11. Consumer expectations of income: If consumers expect their income to rise in the future, they may increase their consumption in anticipation of higher income.

Conversely, if consumers expect their income to fall in the future, they may decrease their consumption in anticipation of lower-income.

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