Q.Discuss the factors influencing demand for a commodity.

Demand for a commodity depends on its own price, income of consumers, prices of related goods, tastes and fashion, population, income distribution, expectations, and other factors like advertisement and climate.

The quantity demanded of a commodity is governed by several factors (determinants of demand) acting together:

1. Price of the commodity itself — the most important factor. Normally, as price falls demand rises and as price rises demand falls (law of demand). Other determinants are usually held constant when stating this.

2. Income of the consumers — a rise in income generally increases demand for normal goods and may reduce demand for inferior goods (whose demand falls as income rises because consumers switch to better substitutes).

3. Prices of related goods:

   • Substitutes (tea and coffee): a rise in the price of one raises the demand for the other.
   • Complements (car and petrol): a rise in the price of one reduces the demand for the other.

4. Tastes, preferences and fashion — demand rises for goods in fashion or favoured by consumers' tastes and falls for goods that go out of fashion.

5. Size and composition of population — a larger population increases total demand; the age and sex composition affects the demand for particular goods (e.g. more children raises demand for toys and baby products).

6. Distribution of income — a more equal distribution raises demand for mass-consumption necessaries, while greater inequality raises demand for luxuries.

7. Consumers' expectations — if consumers expect prices to rise (or income to increase) in future, present demand increases; expectations of a future fall reduce present demand.

8. Advertisement and sales promotion — effective advertisement increases demand by influencing consumer awareness and preference.

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