Question

What do you understand by Demand? Describe the determinants of Demand.

Hint:

Demand is not only affected by the price of the good but also by income, preferences, and external factors like substitutes and complements.

Answer 1

Step 1: Define Demand.
Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices, over a given period of time, holding all other factors constant.
Step 2: Law of Demand.
The law of demand states that, ceteris paribus (all else being equal), as the price of a good increases, the quantity demanded decreases, and vice versa. This is due to the substitution effect and the income effect.
Step 3: Determinants of Demand.
The demand for a good is influenced by several factors: - **Price of the Good:** As the price of the good rises, demand tends to fall (inverse relationship). - **Income of Consumers:** An increase in consumer income generally leads to an increase in demand for normal goods and a decrease in demand for inferior goods. - **Tastes and Preferences:** Changes in consumer preferences, due to trends, advertising, or health considerations, can increase or decrease demand. - **Prices of Related Goods:** The demand for a good can be affected by the price of substitutes (goods that can replace each other) and complements (goods that are used together). - **Expectations of Future Prices:** If consumers expect prices to rise in the future, they may buy more now, increasing current demand. - **Population Size and Demographics:** An increase in population or changes in demographics can affect the demand for goods and services.
Step 4: Conclusion.
Thus, demand is influenced by the price of the good itself and other external factors such as income, tastes, and related goods. Final Answer: \[ \boxed{\text{Demand is the quantity of a good that consumers are willing to buy at various prices, and is influenced by factors like income, prices of related goods, and consumer preferences.}} \]