Question

Explain important factors affecting demand.

Hint:

Use the acronym \textbf{TIPSE} to remember the shifters of demand: \textbf{T}astes and Preferences, \textbf{I}ncome, \textbf{P}rices of related goods, \textbf{S}ize of the market (number of buyers), and \textbf{E}xpectations of future prices.

Answer 1

The important factors that affect the demand for a commodity are:
1. Price of the Good: According to the law of demand, there is an inverse relationship between the price of a good and the quantity demanded, ceteris paribus.
2. Income of the Consumer: For normal goods, demand increases as income rises. For inferior goods, demand decreases as income rises.
3. Prices of Related Goods:

Substitute Goods: An increase in the price of a substitute (e.g., tea) leads to an increase in the demand for the good (e.g., coffee).
Complementary Goods: An increase in the price of a complement (e.g., gasoline) leads to a decrease in the demand for the good (e.g., cars).
4. Tastes and Preferences: A favorable change in consumer tastes or preferences for a product will increase its demand.
5. Consumer Expectations: Expectations of a future rise in price may lead to an increase in current demand.
6. Number of Buyers: An increase in the number of consumers in the market increases the market demand for the good.