DETERMINANT OF DEMAND AND SUPPLY
DETERMINANT OF DEMAND AND SUPPLY
Determinants of Demand
Demand curve shows the relationship between price and quantity demanded. The determinants of demand are income, price of other goods, tastes and preferences, expectations about future prices and incomes, taxes and subsidies.
a) Income
Income is a key determinant of demand. If the income level for a society rise, the demand for goods sure will increase. For example, when individuals’ income rises, they can afford to buy more goods (either normal or luxury) they want, like iPhone. For inferior goods like public phone, the quantity demanded fall when income rise. The reason is every person now affords to buy a mobile phone and stop using public phone when their income increases.
b) Price of Other Goods
The decisions to buy a certain product are based on the price of other goods. In other words, demand of a product is affected by the prices of other products. For example, if the price of iPhone rises from RM2, 200 to RM2, 500, but the price of Samsung Galaxy S3 remains at RM1, 800. The quantity demanded of Samsung Galaxy S3 will increase because they are substitute goods. For complementary goods, when the price of a good declines, the demand for its complement rises. For example, if the price of gasoline decline, the demand of car rises and vice versa.
c) Tastes and Preferences
Tastes and preferences can affect the demand of a good without a change in price. If people like a certain brand name or design of a product, they will buy the products without looking to the price tag. iPhone is a very good example, most of the people bought iPhone because it is an Apple product and the design of the phone itself. Although the price of iPhone is relatively high compared to other smartphones, but the quantity demanded is still very high in most of the countries.
d) Expectations
Demand of a particular good is affected by expectations about future prices and incomes movement. If
Determinants of Demand
Demand curve shows the relationship between price and quantity demanded. The determinants of demand are income, price of other goods, tastes and preferences, expectations about future prices and incomes, taxes and subsidies.
a) Income
Income is a key determinant of demand. If the income level for a society rise, the demand for goods sure will increase. For example, when individuals’ income rises, they can afford to buy more goods (either normal or luxury) they want, like iPhone. For inferior goods like public phone, the quantity demanded fall when income rise. The reason is every person now affords to buy a mobile phone and stop using public phone when their income increases.
b) Price of Other Goods
The decisions to buy a certain product are based on the price of other goods. In other words, demand of a product is affected by the prices of other products. For example, if the price of iPhone rises from RM2, 200 to RM2, 500, but the price of Samsung Galaxy S3 remains at RM1, 800. The quantity demanded of Samsung Galaxy S3 will increase because they are substitute goods. For complementary goods, when the price of a good declines, the demand for its complement rises. For example, if the price of gasoline decline, the demand of car rises and vice versa.
c) Tastes and Preferences
Tastes and preferences can affect the demand of a good without a change in price. If people like a certain brand name or design of a product, they will buy the products without looking to the price tag. iPhone is a very good example, most of the people bought iPhone because it is an Apple product and the design of the phone itself. Although the price of iPhone is relatively high compared to other smartphones, but the quantity demanded is still very high in most of the countries.
d) Expectations
Demand of a particular good is affected by expectations about future prices and incomes movement. If