Determinants of

Demand
Or
Factors affecting
Demand
Individual Demand Functions
(i) Price of a commodity
(ii) Price of other goods / related goods
(iii) Income of a consumer
(iv) Taste & Preferences
(v) Future expectations

Market Demand Functions

All individual demand functions {(i) to (v)}
(vi) Distribution of Income
(vii) Population size
(i) Price of a Commodity :-

Other things remain constant, with a rise in own

price of the commodity, its demand contracts and
with a fall in its own price, the demand extends.
The inverse relationship between own price of the
goods and its demand is called law of demand.
(ii) Price of other goods / related goods

Related goods

Substitute goods Complementary goods

Tea Coffee Pen Ink

Pepsi Coke Car Petrol

Also called cross price effect

(a) In case of substitute goods
(a.1) Increase in price of substitute goods

(a.2) Decrease in price of substitute goods

(b) In case of Complementary goods
(b.1) Increase in price of complementary goods

(b.2) Decrease in price of complementary goods

(iii) Income of a consumer

Change in the income of the consumer also

influences his demand for different goods. The
demand for normal goods tends to increase with
increase in income and vice versa. On the other
hand the demand for inferior goods like (coarse
grain) tends to decrease with increase in income
and vice versa.
Income (Y ) Normal goods Inferior goods
Increase QD QD
Decrease QD QD
(iv)Taste and preferences :

The demand for goods and services also depends

on individuals taste and preferences. Taste and
preferences of the consumers are influenced by
advertisement, change in fashion, climate, new
inventions, etc. Other things being equal demand
for those goods increases for which consumers
develop strong taste and preferences. Contrary it if
test and preference for a product is decreasing its
demand will decrease.
(v)Future expectations :

If the consumer expects a significant change in the

availability of goods in the near future, he may
decide to change his present demand. if the
consumer fears acute shortage of the good in the
near future, he may raise his present demand at
the existing price.
(v)Population size

Demand increases with increase in the number of

buyers of a good and decreases with fall in the
number of buyers at a same price.

(vi)Distribution of income :
Market demand is also influenced by the
distribution of income in the society. If
redistribution of income increases inequality, the
demand for luxury goods is expected to rise
because of rise in income of rich people also, a fall
in the income of the poor people may compel them
to shift from normal to inferior good.
Law of Demand
Meaning: The law of demand states that , other
things remain constant, if price increases then QD
falls and if price decreases then QD rises. There is
a inverse relationship between price of a good and
its QD.

Price QD(x)
5 1
4 2
3 3
2 4
1 5
 Assumptions of law of demand

(i) Price of related goods does not change

(ii) There is no change in the income of the
consumer.
(iii) Taste and preferences does not change.
(iv) There is no change in the price of a good
in the near future.

Exceptions of Law of demand

(i) Articles of Distinction ( Prestigious goods)
(ii) Ignorance
(iii) Giffen Goods