Economics

10 Important Factors That Influence The Demand For A Commodity

The demand for a commodity is determined by several factors. The Law of Demand denotes the relationship between the price of a commodity and the quantity demanded of it. Demand increases with a fall in price and decreases due to a rise in price. It may be noted that besides price, several factors influence the demand for a commodity. Demand changes when changes occur in these factors. When a change in price causes a change in the demand, it is known as a movement along the demand curve curve. Such changes in price and quantity demanded of a commodity are shown on the same demand curve.

On the other hand, ,we have to draw Several demand curves for showing the changes in the quantity demanded of a commodity due to the changes in the factors other than price. Shift in the demand curve arises due to the influence of other factors on the demand of a commodity. Similarly, increase or decrease in demand and extension or contraction of demand are not same. Increase or decrease in demand are shown along different demand curves. But extension or contraction of demand are shown on the same demand curve. Increase or decrease in demand occurs due to the changes in the factors other than the price of a commodity. Extension or contraction of demand arises due to the changes in the price of a commodity.

Determinants or Factors that influence Demand :

The demand for a commodity is determined or influenced by several factors. These factors are explained as follows -:

1. Price : The demand for a at lower commodity is mainly determined by its be less at higher price. The demand will be greater at lower price. Similarly the demand will be less at higher price.

2. Population : Size of population and changes in population act as a great determinant of demand. The demand for various goods varies with the size of population. The demand will be greater when the population is high. It will be less when the population is less. Besides the size of Population, composition of population also influences the demand.

3. Income : Demand also depends on the income of the people. The  demand and income are directly related to each other. People buy more commodities when their income increases. Similarly they buy less commodities when their income is low.

4. Tastes and fashions : Changes in tastes and fashions also determine the volume of demand for commodities. If people are well developed, they demand more commodities. For example, at present, people consider the purchase of polyester and terylene clothes as fashion. Similarly the purchase of pocket-size and small size radios, tape-recorders etc. is considered as a fashion.

5. Discovery of substitutes : Demand for commodities also depends on the discovery of substitutes. The discovery of new substitutes leads to fall in demand for the old commodities. For example, the discovery of plastic and hindaliam led to the decrease in demand for iron and copper utensils. Similarly the demand for jute bags was reduced due to the discovery of paper bags.

6. Prices of substitutes and complementaries : The demand for a commodity also depends on the price of its substitutes and complementaries.  For example,  tea and coffee are close substitutes. If the price for coffee falls, the demand for tea falls as people consider it profitable to buy more quantity of coffee. They also consider that the price of coffee is relatively cheaper when compared to tea. The demand for a commodity is also determined by the price of complementary goods. Let us suppose that car and petrol are good complementaries. If price of cars decrease, the demand for petrol increases. The reason is that more people will buy cars and more quantity of petrol is used by them.

7. Seasons: Change in seasons also determine the quantity demanded of a commodity.Demand changes with a change in seasons. For example, people demand for cool drinks during summer, umbrellas and hot drinks during rainy season. They demand woolen clothes during winter.

8. Distribution of ‘income : The nature of distribution of income between different sections of people also affects the demand for a commodity. If Government takes steps for distribution of income from the rich to the poor sections, then the income of the poor people will increase. As a result, demand for those commodities used by the poor people will increase.

9. Business conditions: Business conditions are another determinant of demand for a commodity. Demand will be high during economic prosperity and will be less during depression.

10. Savings: The level of savings determine the quantity demanded for a commodity. Level of savings and demand are inversely related to one another. If people save more, then the money income available at their disposal will be less. As a result, they buy only a less quantity of commodities. On the other hand, they save a small portion of their income, they will be able to buy more commodities.   Hence the more the level 0f savings, the less will be the demand for goods and vice-versa.

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