Kristyl Jane M.

Viaje ABM 1215 December 2, 2019

FACTORS AFFECTING DEMAND

6 Important Factors That Influence the Demand of Goods

1. Tastes and Preferences of the Consumers:

An important factor which determines the demand for a good is the tastes and
preferences of the consumers for it. A good for which consumers’ tastes and
preferences are greater, its demand would be large and its demand curve will therefore
lie at a higher level. People’s tastes and preferences for various goods often change
and as a result there is change in demand for them.

The changes in demand for various goods occur due to the changes in fashion
and also due to the pressure of advertisements by the manufacturers and sellers of
different products. On the contrary, when certain goods go out of fashion or people’s
tastes and preferences no longer remain favourable to them, the demand for them
decreases.

2. Income of the People:

The demand for goods also depends upon the incomes of the people. The
greater the incomes of the people, the greater will be their demand for goods. In
drawing the demand schedule or the demand curve for a good we take income of the
people as given and constant. When as a result of the rise in the income of the people,
the demand increases, the whole of the demand curve shifts upward and vice versa.

The greater income means the greater purchasing power. Therefore, when
incomes of the people increase, they can afford to buy more. It is because of this
reason that increase in income has a positive effect on the demand for a good.

When the incomes of the people fall, they would demand less of a good and as a
result the demand curve will shift downward. For instance, as a result of economic
growth in India the incomes of the people have greatly increased owing to the large
investment expenditure on the development schemes by the Government and the
private sector.

As a result of this increase in incomes, the demand for good grains and other
consumer goods has greatly increased. Likewise, when because of drought in a year
the agriculture production greatly falls, the incomes of the farmers decline. As a result of
the decline in incomes of the farmers, they will demand less of the cotton cloth and
other manufactured products.

3. Changes in Prices of the Related Goods:

The demand for a good is also affected by the prices of other goods, especially
those which are related to it as substitutes or complements. When we draw the demand
schedule or the demand curve for a good we take the prices of the related goods as
remaining constant.

Therefore, when the prices of the related goods, substitutes or complements,

change, the whole demand curve would change its position; it will shift upward or
downward as the case may be. When the price of a substitute for a good falls, the
demand for that good will decline and when the price of the substitute rises, the demand
for that good will increase.

For example, when price of tea and incomes of the people remain the same but
the price of coffee falls, the consumers would demand less of tea than before. Tea and
coffee are very close substitutes. Therefore, when coffee becomes cheaper, the
consumers substitute coffee for tea and as a result the demand for tea declines. The
goods which are complementary with each other, the fall in the price of any of them
would favorably affect the demand for the other.

For instance, if price of milk falls, the demand for sugar would also be favorably
affected. When people would take more milk, the demand for sugar will also increase.
Likewise, when the price of cars falls, the quantity demanded of them would increase
which in turn will increase the demand for petrol.
4. Advertisement Expenditure:
Advertisement expenditure made by a firm to promote the sales of its product is
an important factor determining demand for a product, especially of the product of the
firm which gives advertisements. The purpose of advertisement is to influence the
consumers in favour of a product. Advertisements are given in various media such as
newspapers, radio, and television. Advertisements for goods are repeated several times
so that consumers are convinced about their superior quality. When advertisements
prove successful they cause an increase in the demand for the product.

5. The Number of Consumers in the Market:

The market demand for a good is obtained by adding up the individual demands
of the present as well as prospective consumers of a good at various possible prices.
The greater the number of consumers of a good, the greater the market demand for it.

Now, the question arises on what factors the number of consumers for a good
depends. If the consumers substitute one good for another, then the number of
consumers for the good which has been substituted by the other will decline and for the
good which has been used in place of the others, the number of consumers will
increase.

Besides, when the seller of a good succeeds in finding out new markets for his
good and as a result the market for his good expands the number of consumers for that
good will increase. Another important cause for the increase in the number of
consumers is the growth in population. For instance, in India the demand for many
essential goods, especially food grains, has increased because of the increase in the
population of the country and the resultant increase in the number of consumers for
them.

6. Consumers’ Expectations with Regard to Future Prices:

Another factor which influences the demand for goods is consumers’
expectations with regard to future prices of the goods. If due to some reason,
consumers expect that in the near future prices of the goods would rise, then in the
 present they would demand greater quantities of the goods so that in the future they
should not have to pay higher prices. Similarly, when the consumers expect that in the
future the prices of goods will fall, then in the present they will postpone a part of the
consumption of goods with the result that their present demand for goods will decrease.

http://www.economicsdiscussion.net/essays/economics/6-important-factors-that-
influence-the-demand-of-goods/926

What factors change demand?

 Demand curves can shift. Changes in factors like average income and

preferences can cause an entire demand curve to shift right or left. This causes a higher
or lower quantity to be demanded at a given price.
 Ceteris paribus assumption. Demand curves relate the prices and quantities
demanded assuming no other factors change. This is called the ceteris
paribus assumption. This article talks about what happens when other factors aren't
held constant.

What factors affect demand?

We defined demand as the amount of some product a consumer

is willing and able to purchase at each price. That suggests at least two factors in
addition to price that affect demand.

Willingness to purchase suggests a desire, based on what economists call tastes

and preferences. If you neither need nor want something, you will not buy it. Ability to
purchase suggests that income is important. Professors are usually able to afford better
housing and transportation than students because they have more income.

Prices of related goods can affect demand also. If you need a new car, the price
of a Honda may affect your demand for a Ford. Finally, the size or composition of the
population can affect demand. The more children a family has, the greater their demand
for clothing. The more driving-age children a family has, the greater their demand for car
insurance, and the less for diapers and baby formula.

The ceteris paribus assumption

A demand curve or a supply curve is a relationship between two, and only two,
variables: quantity on the horizontal axis and price on the vertical axis. The assumption
behind a demand curve or a supply curve is that no relevant economic factors, other
than the product’s price, are changing. Economists call this assumption ceteris paribus,
a Latin phrase meaning “other things being equal”. If all else is not held equal, then the
laws of supply and demand will not necessarily hold. The rest of this article explores
what happens when other factors aren't held constant.

How does income affect demand?

Say we have an initial demand curve for a certain kind of car. Now imagine that
the economy expands in a way that raises the incomes of many people, making cars
more affordable and that people generally see cars as a desirable thing to own. This will
cause the demand curve to shift.

Related goods

The demand for a product can also be affected by changes in the prices of
related goods such as substitutes or complements. A substitute is a good or service
that can be used in place of another good or service. As electronic resources, like the
one you are reading now, become more available, you would expect to see a decrease
in demand for traditional printed books. A lower price for a substitute decreases demand
for the other product.

For example, in recent years as the price of tablet computers has fallen, the
quantity demanded has increased because of the law of demand. Since people are
purchasing tablets, there has been a decrease in demand for laptops, which can be
shown graphically as a leftward shift in the demand curve for laptops. A higher price for
a substitute good has the reverse effect.

Other goods are complements for each other, meaning that the goods are often
used together because consumption of one good tends to enhance consumption of the
other. Examples include breakfast cereal and milk; notebooks and pens or pencils; golf
balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of
bacon, lettuce, tomato, mayonnaise, and bread. If the price of golf clubs rises, the
quantity demanded of golf clubs falls because of the law of demand, and demand for a
complement good like golf balls decreases along with it. Similarly, a higher price for skis
would shift the demand curve for a complement good like ski resort trips to the left,
while a lower price for a complement has the reverse effect.

https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-
demand-equilibrium/demand-curve-tutorial/a/what-factors-change-demand