Q.What are the factors that determine demand?

The demand for a good depends on its own price, consumers' income, prices of related goods, tastes and fashions, size and composition of population, distribution of income, and expectations about future prices. Together these are the determinants of demand (the demand function).

Meaning

Demand means the quantity of a commodity a consumer is willing and able to buy at a given price during a given period of time. The demand function expresses demand as depending on a number of determinants.

Factors that Determine Demand

1. Price of the commodity — the most important factor. Normally, the lower the price the larger the quantity demanded, and vice versa (law of demand).
2. Income of the consumer — as income rises, demand for normal goods increases, while demand for inferior goods falls.
3. Prices of related goods —
   • For substitutes (tea and coffee), a rise in the price of one raises the demand for the other.
   • For complementary goods (car and petrol), a rise in the price of one reduces the demand for the other.
4. Tastes, preferences and fashion — favourable tastes, habits and fashion raise demand; a good going out of fashion loses demand.
5. Size and composition of population — a larger population, and a higher proportion of a particular group (children, old people), raises demand for the relevant goods.
6. Distribution of income — a more equal distribution of income raises the demand for goods of mass consumption. …