Determinants of demand refers to desire of a consumer to purchase goods and services and ability to pay a price for the goods and services purchased. No business will produce anything, without consumers demand.
Demand is an important factor for expansion and economic growth.
For instance, if the price of goods or services increases will lead to decrease in the demand of goods and services by the consumer, and vice versa.
Determinants of Demand
They are as follows:
Price of the product:
- Price plays an important factor to make decision if all other factor remains constant.
- Increase in demand follows reduction in price and similarly, decrease in cost of goods and services will increase the demand
Income of consumer
- Income and demand is directly proportional
- When the income rises, the demand for the good and services increases. When the income fall, the demand will decrease simultaneously
Price of related goods and services
- Complementary products – complementary goods are goods that are used together. When the price of a particular item changes, it changes the demand of that item as well as the complement. Example: Increase in the price of car will reduce the demand for petrol.
- Substitute Product –Substitute products are those products which are used for same purpose. Example: Price of tea increases then the demand for coffee increases and the demand for tea decreases.
- When consumer expect value of something will increase , they demand more of it
- For ex, if the vehicle price is expected to increase, people buy more
Number of Buyers in the Market
- The number of buyers plays a major effect on the total demand
- As the number of buyer increases, the demand rises and vice versa
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