8 factors affecting demand
Concept of demand: Before discussing the factors affecting demand, let us discuss the concept of demand.
Demand is the ability and willingness to buy a product at given price and a particular time. The word demand is different from the want and the word desire. Want means that a person has the money but he does not want to spend. Desire is just a wish; it means that a person does not have the money to buy a product.
Demand has following conditions:
1.Time 2. Price that is why Demand is the ability and willingness to buy a product at given price and a particular time.
Demand functions or demand determinants:
There are 8 factors affecting demand. These are known as Demand functions. Demand functions are the factors on which our demand depends.
Demand= f(PX, PR, Y,T,N,E,C,YD)
- Price of the commodity (PX,) : the quantity demanded by the consumer depends upon the price of the product, keeping other things equal.
2. Price of related goods (PR) : The second factor affecting demand is price of related goods. In this case there are two types of goods one is substitute goods and other is complementary goods. Substitute goods are those which can be substitute for one another like tea and coffee: if the price of tea increases the demand of coffee will increase and if the price of tea decreases the demand of coffee will also decreases thus there is a positive relation between demand and price. Complementary goods are the goods whose are demanded altogether like car and petrol or ink and pen. If the price of petrol increase the consumer will start buying diesel cars instead of petrol cars so demand will decreases on the other hand if the price of petrol falls people will start buying petrol cars. Thus there is a negative relation between the complementary goods.
3. Income of the consumer(Y): in this there are two cases. First are normal goods these are the goods whose demand increases with the increase in income and decreases with the decrease in the income. The other one is Giffin goods or inferior goods these are the goods whose demand increases with the decrease in the income and demand decreases with the increase in the income.
4.Taste and preference (T): it has a positive relation with demand which means that if a person has taste and preference for a particular product then he will demand it otherwise not.
5.Population (N): if the population of any place is high then the demand will also be more otherwise there will be less demand. This is the fifth factor affecting demand.
6. Expectation regarding future price (E): if the consumer is thinking or expecting rise in price in the coming future then the demand of the product at present will increase as there will be price hike in the future. On the other hand if the consumer is expecting that the future price will be low then their demand right now will be less.
7. Climatic conditions (C): the demand of the persons also depends upon the climatic conditions of that place. If the climate over there is hot then there will be no need of woolen clothes in the particular region otherwise there will be need of woolens.
8. Distribution of income (YD) : if there is equal distribution of income then demand will be more but if there is an unequal distribution then there will be less demand. This is the eight or last factor affecting demand.
The above are the 8 factors affecting demand. If you know more, please share.