Economics · Ch 3 — Demand
Determinants of Demand
2
Determinants of Demand
The quantity demanded of any commodity is influenced by several factors acting together. The price of the commodity itself is treated as the single most important determinant and is studied in isolation in the Law of Demand (Section 4); every other influence is bundled into the ceteris paribus clause. The Gujarat Std 11 Commerce Economics curriculum lists the following determinants as the standard set a student must be able to explain with examples:
| Determinant | Effect on demand |
|---|---|
| Price of the good itself | Inverse relationship — higher price, lower quantity demanded (Law of Demand) |
| Price of related goods | Substitutes (tea/coffee): price of one rises → demand for the other rises. Complements (car/petrol): price of one rises → demand for the other falls |
| Income of the consumer | Normal goods: demand rises as income rises. Inferior goods: demand falls as income rises past a point |
| Tastes, preferences and fashion | A favourable change in taste raises demand even at the same price |
| Consumer's expectations of future price | Expectation of a price rise tomorrow increases demand today (and vice versa) |
| Number of buyers (size of population/market) | A larger number of buyers raises market demand at every price |
| Distribution of income and wealth | A more equal distribution generally raises demand for mass-consumption goods |
| Government policy (taxes/subsidies) | A subsidy effectively lowers the price paid and raises demand; a tax works the other way |
| Advertising and sales promotion | Effective advertising can shift demand upward independent of price |
| Climate and seasonal factors | Demand for umbrellas rises in the monsoon, for woollens in winter, regardless of price |