DETERMINANTS OF DEMAND

The following are the determinants of demand (factors which influence demand)

1.  Price:  Price influences the demand for a product.  Generally when price rises, demand falls and vice versa.

2.  Income:  Income and demand have a positive relationship. When income increases, demand increases and when income decreases, demand decreases.

3. Consumers tastes and preferences:  Consumer’s tastes and preferences can influence the demand for a product.  Generally when consumer’s tastes and preferences change, the demand also changes.

4.  Price of substitutes:  Price of substitutes can influence the demand for a product; For instance a change in the price of coffee can have an impact in the demand for tea.

5.  Price of compliments:  Price of complimentary goods influence the demand for a product.  For instance, when the price of petrol increases, the demand for vehicles may fall.

6.  Customs, traditions and fashion: Customs, traditions and fashion influence the demand for products.  For instance during marriages and festivals it is customary and traditional to wear new clothes and jewels.  Likewise change in fashion influences the demand for products.

7.  Changes in supply of the commodity: any change in the supply of goods influences the demand for commodities.  If any shortage is predicted in future, then the demand for the product increases.

8.  Weather conditions:  Weather conditions influence the demand for products. For instance in cold and rainy weather the demand for coffee increases and during summer, the demand for ice creams and juice increase.

9.  Population:  Quantitative and qualitative changes in population influence the demand for products.  For instance, when the size of population increases the demand for necessaries automatically increase.

10.  Government policy:  Government policies influence the demand for products.  When the government levies higher taxes on products, their price automatically increase, their by reducing the demand.  On the other hand subsidies can help to reduce the price their by increasing the demand.