WHAT ARE THE DETERMINANTS OF DEMAND OR FACTORS AFFECTING DEMAND?
Determinants or factors affecting the demand are things affecting demand. In simple words changes in demand due to certain factors are known as 'determinants of demand'.
Factors affecting the demand are given as follows
1) Price: the price is the most important factor that affects the demand for goods and services. An increase in price will lead to a decrease in the demand for commodities whereas a decrease in price would lead to an increase in demand.
2) Income: consumer income is one of the important determinants of demand. The higher the income higher will be demand for commodities.
3) Price of complementary goods: complementary goods are jointly demanded goods, for example, cars and petrol. An increase in the price of one commodity (product x) will lead to a decrease in demand for related goods(product y)
For example, a rise in the price of petrol will lead to a decrease in demand for cars.
4) Price of substitute goods: substitute goods are competitive goods like Coke and Pepsi. A rise in the price of product x will lead to an increase in demand for product y.
For example increase in the price of Pepsi will lead to an increase in demand for coke.
5) Population size: population size is one of the important factors affecting demand. The higher the size of the population, the higher will be commodities demanded. The lower the size of the population, the lower will be commodities demanded.
6) Tax rate: higher the taxes lower will be the amount available for purchasing commodities which will reduce demand, whereas a decrease in tax rate will increase the amount available for purchasing commodities which will increase demand.
7) Taste and preferences: consumer likes and dislikes affect demand for commodities. Taste and preference are affected by fashion trends, tradition, culture, technology, etc.
8) Future expectations: future expectations are an important factor affecting demand. If consumers expect the price of goods will increase in that case consumers will buy in large quantities and vice versa.
For example: if people expect the price of onions to rise in the next month, in that case, they will purchase more quantities of onions in the current month.