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| Source - Vecteezy |
After smith another renowned economist who mentions about the equilibrium point in demand and supply is Alfred marshal. As this is remarkable contribution of marshal in microeconomics. Later on he even contributed in the theory of price elasticity of demand.
Demand in economics means the customers desire and the ability as well as willingness to purchase the commodity. It’s the underlying process which drives economic growth of the nation. Without demand an company won’t be producing anything.
Law of demand
The law of demand governs the price and quantity demanded. As the price increases leads to demand decreases. It works both ways price decreases leads to increment in demand. Price is not only the factor that determines the demand by keeping other factors constant.
Determinants of demand
Changes in income levels
The income levels affects majorly the demand for a commodity. The income of the consumers rises it leads to increase in the consumption of the consumers.
The demand for a commodity, changes as the income of the consumer changes. When the income levels increases the demand for goods and services increases for a normal good. When the income level increases but demand for the goods decreases are for the inferior goods.
Buyers expectation
The expectation of the buyers from a commodity changes over the period of time. As the taste and preferences changes over the period of time. Now it depends upon the producers to innovate and bring the changes in the commodity. This leads to an different consumer’s experience with the product which then attracts other consumers.
If the consumer thinks that certain consumption can be postponed that too affects the demand. If the consumer thinks that the price of the commodity will fall down then they will wait for a period of time. This leads to reduction in present demand.
Demographic factors
Certain commodities are produced and sold in the local markets. As these goods aren’t available everywhere. As the population too matters in demand as this is the major concerning factor as you always won’t be able to meet the demand in the world while you can create the demand with your product.
Preferences
The preferences affects the demand. As we saw how Tim Hortins increased the demand for the coffee in the market. another example here is the demand for Tabaco fell due to health concerns. That’s how the shift in demand curve happens.
Price of related goods
The price of the related goods too affects the demand. As the different substitute as well as complementary goods are available in the market. The example for the substitute goods is either you will consume tea or a coffee. If the price of tea increases the demand for tea will decrease on the other hand the demand for coffee will increase as people would like to shift their preference from tea to coffee.
The example for complementary goods is that you have to purchase the other good with this good. As its really important part of that product. With a DVD player you have to buy the television to run the video content.
That’s was the concept and how the other factors affects the demand for a commodity.
Written by - Sakshi Alimchandani
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