Question

Explain any four factors affecting demand.

Hint:

Distinguish between "Movement along the demand curve" (caused by change in own price) and "Shift in the demand curve" (caused by changes in other factors like income or tastes).

Answer 1

Step 1: Understanding the Concept:
The demand for a commodity refers to the quantity that consumers are willing and able to buy at various prices.
Various factors, collectively known as determinants of demand, influence this quantity.
Step 2: Detailed Explanation:
1. Price of the Commodity: This is the most important factor. According to the Law of Demand, there is an inverse relationship between price and quantity demanded. As price rises, demand falls, and vice-versa.
2. Income of the Consumer: For normal goods, demand increases as income increases. However, for inferior goods (like coarse grain), demand may decrease when income rises as consumers switch to superior quality items.
3. Price of Related Goods:
- Substitute Goods: If the price of tea increases, the demand for coffee (its substitute) may rise.
- Complementary Goods: If the price of petrol rises, the demand for cars (complementary good) may fall.
4. Tastes and Preferences: Demand is heavily influenced by consumer habits, fashion, and trends. Commodities that are in fashion see higher demand regardless of small price changes.
Step 3: Final Answer:
Demand is determined by price, consumer income, prices of substitutes/complements, and individual preferences.