There are several factors which influence the quantity demanded of a commodity. Important among them are the price of the commodity, the price of related commodities, and income of the consumer, taste and preference of consumers, size of population and various other factors.
It is essential to observe the separate effect of each variable on the quantity demanded. It helps to consider the effect of a change in all the variables on the quantity demanded at the same time.
This enables economists to develop a theory of consumer’s demand. However, in law of demand we keep all other factors constant except price of the good in question. Below we will discuss in detail, the factors influencing demand.
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(1) Price of Commodity:
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The price of commodity is the most important factor that determines the demand of a commodity. As a matter of fact, there is inverse relationship between the price of the commodity and the quantity demanded.
It means that the price and quantity demanded move in opposite direction. For example, lower the price, higher is the demand. On the contrary, higher is the price; lower is the demand of the commodity.
(2) Prices of Complementary Goods and substitutes:
The demand for a commodity is affected by the prices of complementary goods and also of substitutes. When the price of petrol increases the demand for scooter or motor cycle and car will decrease. Similarly, when the prices of motor cars increased people demanded more of scooters. The prices of scooters increased.
(3) Taste, Preference and Habits:
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The demand of a particular commodity depends to a great extent, upon the tastes, habits, advertisements, new inventions, customs, fashions and preference of the people.
The person will demanded only items of prevailing customs or his preferences even at a higher price. Similarly, any commodity of the latest fashion is in more demand even at a higher price, as compared to that item which is now out of fashion.
(4) Population:
An increase in population of region will result in an increased demand of various goods. Also, the composition of population determines the demand of certain goods proportionately. For example, an increased number of females in the region will generate more demand for sarees, ornaments, cosmetics etc.
(5) Income:
When income of the consumers rise their entire consumption increases. They consume more at the prevailing price or even at the same price. They switch over from inferior goods or necessary goods to luxuries. With decrease in income their demand will decreases even at the same price.
(6) State of Economic Activity:
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The demand for commodities also depends upon prevailing business conditions in the country. For example, during the inflationary period, more money is in circulation and people have more purchasing power.
This causes an increase in demand of various goods even at higher prices. Similarly, during deflation (depression), the demand for various goods reduces in spite of lower prices because people do not have enough money to buy the things.
(7) Government Policy:
Economic policy adopted by the government also influences the demand for commodities. If the government imposes taxes on various commodities in the form of sales tax, excise duties, octroi etc., the price of these commodities will increase. As a result, the demand of such commodities is very likely to fall.
(8) Income Distribution in a Country:
Distribution of income in a society affects the level of demand. If in a society the distribution of income is unequal then there will be many poor and few rich people. In such a society the level of demand is low. On the other hand, if the distribution of income is equal the level of demand will rise.
When more people are poor but have the equal income the demand for necessaries will increase. In case of unequal distribution the demand for luxuries by the rich will increase.
(9) Price Expectations:
If people anticipate a rise in the prices of commodities due to some reasons or other the demand for it will rise. If consumers expect a fall in price the demand for commodity will fall.
(10) Advertisement:
In this age of advertisement demand for many fashionable items are created by advertising agents through T.V., newspapers, radios etc.
(11) Demonstration effect:
It refers to a situation when a particular person or family follows the living standard or living pattern of other persons or neighbours. Due to this effect people demand more than their requirements by following the standard of living of others.
(12) Weather Conditions:
The demand for various household goods depends upon the changes in weather conditions. For example, the demand for woolen clothes, coal and electric heaters increases during winter and the demand for cold drinks, ice creams, room coolers, etc. goes up during hot weather.