Determinants of Demand
DETERMINANTS OF DEMAND
The determinants of individual demand of a particular good, service or commodity refer to all the factors that determine the quantity demanded of an individual or household for the particular commodity.
1) INCOME
Income is one of the factors that affect the demand for a given product. Normally, we expect that as one's income rises (falls), the demand for a product will rise (fall). Because we normally expect this to be true, a good for which this statement is true is called a normal good. Occasionally, we shall encounter a good for which the statement is not true. These are called inferior goods; for these goods, as income rises (falls), the demand for the product falls (rises). One example of an inferior good might be black and white television sets. People buy them only because they cannot afford a color television set.A company or a government agency wants to know how much the demand will rise if income rises by a certain percent. In particular, they want to know the income elasticity of demand.
2) THE PRICE OF A SUBSTITUTE GOOD:
Substitutes are different goods that compete with the one under consideration. As the price of the substitute rises (falls), the demand for the product rises (falls). Again, knowing these relationships is important information. We want to know how much the demand for a product will change if there is a given percentage change in the price of another product. This is called the cross elasticity of demand .
3) PURCHASING POWER PARITY :
The purchasing power of the consumers in a country decides how a product will fare in a particular country because at the end it is the consumers who have to consume that product.
4) PREFERENCES OF THE CONSUMER:
There are continuous changes in the tastes and preferences of the consumer. A company has to keep changing and modifying its products according to the changing tastes of the consumer.
The determinants of individual demand of a particular good, service or commodity refer to all the factors that determine the quantity demanded of an individual or household for the particular commodity.
1) INCOME
Income is one of the factors that affect the demand for a given product. Normally, we expect that as one's income rises (falls), the demand for a product will rise (fall). Because we normally expect this to be true, a good for which this statement is true is called a normal good. Occasionally, we shall encounter a good for which the statement is not true. These are called inferior goods; for these goods, as income rises (falls), the demand for the product falls (rises). One example of an inferior good might be black and white television sets. People buy them only because they cannot afford a color television set.A company or a government agency wants to know how much the demand will rise if income rises by a certain percent. In particular, they want to know the income elasticity of demand.
2) THE PRICE OF A SUBSTITUTE GOOD:
Substitutes are different goods that compete with the one under consideration. As the price of the substitute rises (falls), the demand for the product rises (falls). Again, knowing these relationships is important information. We want to know how much the demand for a product will change if there is a given percentage change in the price of another product. This is called the cross elasticity of demand .
3) PURCHASING POWER PARITY :
The purchasing power of the consumers in a country decides how a product will fare in a particular country because at the end it is the consumers who have to consume that product.
4) PREFERENCES OF THE CONSUMER:
There are continuous changes in the tastes and preferences of the consumer. A company has to keep changing and modifying its products according to the changing tastes of the consumer.