ADVERTIsem*nTS:
The quantity demanded of a commodity by a consumer depends mainly on price of the commodity itself, prices of other related goods, income of consumer and tastes and preferences of the consumer.
The above statement can also be expressed by symbols as:
DA=F (PA: PB, PC, PD……. I, T)
ADVERTIsem*nTS:
Where DA shows the consumer’s demand for commodity A; PA stands for the price of the commodity itself; PB, PC, PD . . . show the prices of other related goods, 1 denotes consumer’s income and T denotes tastes and preferences of the consumer; F denotes functional relationship.
We shall now discuss each factor influencing the demand in detail:
(i) Price of the commodity itself:
When a commodity is selling at a very high price, only rich people are able to buy it. So the demand of that commodity will be less. But when the price is low more and more people will be able to buy it and the demand of the commodity would be more. Thus, the demand of the commodity is greatly influenced by its price.
(ii) Prices of other related goods:
The demand for a commodity is also influenced by prices of other related goods as substitutes. Tea and coffee are substitutes to each other. A change in the prices of such commodities affects the changes in the consumption of its substitutes. For example, a change in the price of tea will change the consumption of coffee.
(iii) Level of income of the consumer:
ADVERTIsem*nTS:
Consumer’s demand is also influenced by the size of his income. This is but natural that with increase in the level of income, there is increase in the demand of goods and services. Increased level of real incomes creates more purchasing power in the country. As the level of income increases, the demand for goods and services also increases.
(iv) Tastes and Preferences of the Consumer:
Tastes and preferences of the consumer also influence his demand. A taste, fashions, preferences of the consumer keep on changing and is his demand.
(v) Population:
The change in the population in a country changes the demand. This change in population is in terms of change in the size and composition of population. Increase in the size of population will definitely increase the demand of commodities and services.
Again increase in the size of population also affects the composition of population. By consumption of population is meant the distribution of population in terms of the age-group, sex- ratio, and skilled or unskilled population. In a country where the majority of population is composed of minors, naturally demand for such goods will be more which interest more to minor-toys, sports goods, etc.
(vi) Income Distribution:
ADVERTIsem*nTS:
It is only the size or level of income which affects the demand but also the nature of income distribution in the country. In countries where income distribution is equal, the demand pattern will also be even. This can be illustrated from the example of socialist countries like Russia and China. In capitalist countries where there is inequality of income, the demand pattern is different.
(vii) State of trade:
During a period of boom—a period in which there is higher circulation of money and the production level is at a peak, the employment of resources reaches the optimum level. Consequently there is more purchasing power in the hands of the people.
The demand for goods and services is also high. But during the depression, economic conditions are different and opposite to the boom period. The level of purchasing power is now because of lower level of employment or resources. So the demand for goods and services is low.
(viii) Climate and weather:
Cold countries have more demand for woolen clothes, heaters, etc. Whereas the demand in the tropical countries for cotton textiles, umbrellas, rain coats, etc., is more. Even in the same country demand for umbrellas and rain coats will not be as high in the winter as during the rains. Thus, change in weather also influences the demand.
