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Determinants of Demand: 5 Determinants | Goods

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❶For example, if a product has high tax rate, this would increase the price of the product.

For instance, if females are large in number as compared to males in a particular area, then the demand for feminine products, such as make-up kits and cosmetics, would be high in that area. Refer to the fact that the demand for a specific product is influenced by the price of related goods to a greater extent. Related goods can be of two types, namely, substitutes and complementary goods, which are explained as follows: Refer to goods that satisfy the same need of consumers but at a different price.

For example, tea and coffee, jowar and bajra, and groundnut oil and sunflower oil are substitute to each other. The increase in the price of a good results in increase in the demand of its substitute with low price. Therefore, consumers usually prefer to purchase a substitute, if the price of a particular good gets increased.

Refer to goods that are consumed simultaneously or in combination. In other words, complementary goods are consumed together. For example, pen and ink, car and petrol, and tea and sugar are used together. Therefore, the demand for complementary goods changes simultaneously. The complementary goods are inversely related to each other.

For example, increase in the prices of petrol would decrease the demand of cars. Imply that expectations of consumers about future changes in the price of a product affect the demand for that product in the short run.

For example, if consumers expect that the prices of petrol would rise in the next week, then the demand of petrol would increase in the present. On the other hand, consumers would delay the purchase of products whose prices are expected to be decreased in future, especially in case of non-essential products. Apart from this, if consumers anticipate an increase in their income, this would result in increase in demand for certain products.

Moreover, the scarcity of specific products in future would also lead to increase in their demand in present. Refers to one of the important factors of determining the demand for a product. Effective advertisements are helpful in many ways, such as catching the attention of consumers, informing them about the availability of a product, demonstrating the features of the product to potential consumers, and persuading them to purchase the product.

Consumers are highly sensitive about advertisements as sometimes they get attached to advertisements endorsed by their favorite celebrities. This results in the increase demand for a product. Influences the demand for a product in the market to a large extent.

If income is equally distributed among people in the society, the demand for products would be higher than in case of unequal distribution of income. However, the distribution of income in the society varies widely. This leads to the high or low consumption of a product by different segments of the society.

For example, the high income segment of the society would prefer luxury goods, while the low income segment would prefer necessary goods. In such a scenario, demand for luxury goods would increase in the high income segment, whereas demand for necessity goods would increase in the low income segment.

Acts as a crucial factor that affect the market demand of a product. If the number of consumers increases in the market, the consumption capacity of consumers would also increase. Therefore, high growth of population would result in the increase in the demand for different products.

Refers to one of the major factors that affect the demand for a product. For example, if a product has high tax rate, this would increase the price of the product. This would result in the decrease in demand for a product. Similarly, the credit policies of a country also induce the demand for a product. For example, if sufficient amount of credit is available to consumers, this would increase the demand for products.

Affect the demand of a product to a greater extent. The relationship is studied by studying the demand curve. The most important feature of this relationship is the law of demand , which asserts that an increase in unit price leads to a decrease in quantity demanded.

The cause of a change in quantity demanded, either at the individual or market level, is usually a change in one of the determinants of demand. Given below is a comprehensive table of examples:. Retrieved from " https: Navigation menu Personal tools Log in. Views Read View source View history. Top pages Adverse selection versus moral hazard Determinants of demand Demand curve Price bundling Price discrimination Price ceiling Law of demand. Detailed technical pages Determination of quantity supplied by firm in perfectly competitive market in the short run Effect of sales tax on market price and quantity traded Determination of price and quantity supplied by monopolistic firm in the short run Comparative statics for demand and supply.

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The five determinants of demand are: The price of the good or service. Prices of related goods or services. These are either complementary (purchased along with) or substitutes (purchased instead of). Income of buyers. Tastes or preferences of consumers. Expectations. These are usually about whether the price will go up.

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Conversely, a decrease in the price of one of the goods will increase demand for the complementary good. For example, decreases in the prices of video game consoles serve in part to increase demand for video games. Goods that don't have either the substitute or complement relationship are .

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The following points highlight the five determinants of demand. The determinants are: 1. The Price of the Commodity 2. The Prices of Related Goods (i.e., Substitutes and Complements) 3. Complement goods (those that can be used together): price of complement and demand for the other good are inversely related. Example: if the price of ice cream rises, the demand .

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The prices and nature of complementary goods, i.e., goods for which increased consumption makes the consumption of the given good more worthwhile. A drop in the price of complementary goods leads to an increase in demand, ceteris paribus. Determinants of demand. Non price factors that affect demand and shift the demand curve to the right or left. Utility. Substitute goods and complementary goods are known as. Inverse (opposite) Demand schedules and demand curves show that the relationship between price and demand is.