DEMAND AND ITS DETERMINANTS

DEMAND for a commodity refers to the quantity of a commodity which a consumer is willing to buy at a given price and at a given point of time.

DETERMINANTS OF DEMAND

The various factors which determine the demand for a commodity are described as follows:

·         PRICE OF THE COMMODITY

The demand for a commodity is inversely related to its price. This means that when the price of the commodity increases, its quantity demanded decreases and vice versa. This happens because of the change in the purchasing power or the real income of the consumer. When the price of the consumer increases, the purchasing power of the consumer decreases due to which he is able to buy lesser quantity of the same commodity with his given income thus resulting in a drop in the quantity demanded.

·         PRICE OF RELATED GOODS

PRICE OF SUBSTITUTE GOODS

Substitute goods are the goods which can be used in place of each other to satisfy a want. For instance, tea and coffee are substitute goods. The quantity demanded of a commodity is directly related to the price of the substitute good. When the price of coffee which is a substitute of tea increases, the demand of tea will increase since now the consumers who were previously consuming coffee will start consuming tea, thus, leading to an increase in its demand.

PRICE OF COMPLIMENTARY GOODS

The goods which are used together to satisfy a single want are called complimentary goods. For instance, pen and refill are used in compliment with each other for the purpose of writing. The quantity demanded for a commodity is inversely related to the price of its complimentary good. When the price of pen increases, the demand for its refill decreases since many users switch to other pens available in the market and start using their complimentary refills.

·         INCOME OF THE CONSUMER

The effect of the income of the consumer on the quantity demanded depends on the nature of the good. There are two types of goods

ü  NORMAL GOODS – Those goods whose demand increases with an increase in the income of the consumer are normal goods. E.g. wheat, rice etc.

ü  INFERIOR GOODS – Those goods whose demand falls with an increase in the income of the consumer are called inferior goods. E.g. jowar, barley etc.

·         TASTES AND PREFERENCE OF THE CONSUMER

A favourable change in the taste and preference of the consumer leads to a rise in the demand of a commodity and an unfavourable change in the taste and preference of the consumer drops the quantity demanded of a commodity.

·         MISCELLANEOUS

-          Change in the number of family members- An increase in the number of family members increase the demand of a commodity and vice versa.

-          Change in weather conditions- The demand of a commodity is dependent on the weather conditions as well. E.g. during summers, the demand for cotton clothes increases which eventually drops during winters when the demand for the woollen clothes is extremely high.

-          Discovery of a new substitute- When a new substitute of a commodity is discovered, it leaves an impact on the demand of other goods.

-          Expected change in future prices- When a good is expected to be expensive in future, its demand increases and when a commodity is expected to be cheaper in future, its demand falls.

Please visit our website Takshila Learning

For video Tutorials subscribe to our youtube channel Takshila