1. Price of a
commodity: Price of the commodity is the most important factor that determine
demand. An increase in price of a commodity leads to a reduction in demand and
a decrease in price leads to an increase in demand.
2. Price of
related goods: Demand for a commodity
depends on Price of related goods also. Related goods include both substitutes
and complementary goods.
Substitutes are
those goods which can be used one another or the goods with same use are substitutes.
e.g.:- tea and coffee.When price of tea falls demand for coffee also falls.
Because when price of tea falls people buy more tea and less coffee.
Complementary
goods are those goods which can be used only jointly. e.g.: - car, petrol or
pen, ink. When price of a commodity raises demand for its complementary goods
falls. If x and y are complementary goods we cannot use x without y. When price
of x raises demand for x falls and y cannot be used without x and demand for y
also falls.
3. Income of the consumer:
Income of the consumer and demand for a commodity are positively related. For
normal goods when income increases demand also increases and vice versa. But
for inferior goods there is a negative relationship between income and demand.
So when income increases, demand decreases.
4. Taste and
Preferences of consumers: Taste and Preferences of consumers also brings out
changes in demand for a commodity. Tendency to imitate other fashions,
advertisements etc affect demand for a commodity. It change from person to
person, place to place and time to time.
5. Rate of
Interest: Higher will be demanded at lower rates of interest and lower will be
demanded at higher rate of interest.
6. Money supply:
Demand is positively related to money supply. If the supply of money increases
people will have more purchasing power and hence the demand will increase and
vice versa.
7. Business
condition: Demand will be high during boom period and low during depression.
8. Distribution of
income: Distribution income in the society also affects the demand of
commodity. If there is equal distribution of income demand for necessary goods
and comforts will be greater.
9. Government
policy: Government policy also affects the demand of commodities.
10. Consumers’
expectations: Consumers’ expectation about a further rise or fall in future
price will affect the demand of a commodity. If consumers expect a rise in the
price of a commodity in the near future, they may purchase large quantity even
though there is some rise in the price. When the price of a commodity
decreases, people expect a further fall in price and postpone their purchase.
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