Determinants of Demand- BUSINESS ECONOMICS(BBA/MBA)

 

Determinants of Demand

There are many determinants of demand, but the top five determinants of demand are as follows:

1) Product cost: Demand of the product changes as per the change in the price of the commodity. People deciding to buy a product remain constant only if all the factors related to it remain unchanged.

2) Taste and preferences of consumers: The demand for a commodity/product depends on taste and preferences of consumers. If consumer develops taste or preference over a commodity, they will buy the product irrespective of its high price.

3) The income of the consumers: When the income increases, the number of goods demanded also increases. Likewise, if the income decreases, the demand also decreases.

4) Costs of related goods and services: For a complimentary product, an increase in the cost of one commodity will decrease the demand for a complimentary product. Example: An increase in the rate of bread will decrease the demand for butter.  Similarly, an increase in the rate of one commodity will generate the demand for a substitute product to increase.

 4) Consumer expectation: High expectation of income or expectation in the increase/decrease  in price of a good also leads to an increase/decrease in demand.

5) Growth of population: Another important factor that affects the market demand. Increase in the population, naturally demands more goods.

6)  Tax rate: This also affects the demand, like high tax rate means low demand for goods and vice versa

7) Weather conditions: The demand for certain products purely depends on climatic and weather conditions. Eg: High demand for Soft drinks in summer, high demand for jackets, & woolen clothes in winter.

8) Availability of Credit: Availability cheap credit would increase the demand for durable goods , etc

9) Circulation of Money: Expansion and contraction of quantity of money will affect the demand

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