Introduction
In simple terms, demand refers to the quantity of products that consumers are ready to purchase. It includes both willingness (desire) and ability to pay for a good or service. Consumer's willingness and ability to purchase are affected by several factors which are known as determinants of demand. In this post we are going to discuss some key factors or determinants that influence the demand of goods or services.
What Are The Determinants Of Demand ?
The major factors influencing demand or the determinants of demand can be described as follows:
1. Commodity Price
Price of the commodity is the main factor that influences the quantity of demand. If price increases then the demand of that commodity decreases and vice versa. Therefore, price of the commodity is known as the core driver of demand.
2. Income Of The Consumer
Income is another notable determinant of demand . If income rises, then consumers buy more products and if the income of people decreases then the demand for the product decreases because it impacts the purchasing power of the people.
3. Price Of Substitutes
Prices of related goods (substitutes and complements also affect the demand. If the price of substitutes or complementary goods increases, then the demand for another related good will increase and vice versa.
Tastes and preferences is another determinant that affects demand. Consumers are attracted towards the new taste because of change in lifestyle, fashion, customs etc. Increase in tastes and preferences leads to increase in demand.
5. Number Of Consumers
Demand is affected by the numbers of buyers in the market. Large number of customers means more demand and vice versa. Therefore, size of the market and demography also influence the demand for the products or services.
6. Advertisement
Producers advertise their products to attract more consumers. Therefore, advertisement helps to increase the demand of the products and services.
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7. Future Expectations
Future expectations of buyers also influence demand. Expectation of rise in price in near future increases demand and expectation of fall in price leads to decrease in demand at present.
8. Tax Policy
Country's tax policy is another determinant of quantity of demand. If rate of tax increases, the quantity of demand decreases and vice versa.
9. Seasonal Factors
Seasons and weather conditions also impact demand such as:
- Demand for umbrella increases in rainy season
- Demand for fan and air conditioner increases in summer
- Demand for heater and warm clothes increases in winter season
