Demand - Factors Affecting Demand

Factors Affecting Demand

Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the more common factors are:

Good's own price: The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally the relationship is negative meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it.

PRICE OF RELATED GOODS: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good.Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up the quantity demanded of the other good goes down.Mathematically, the variable representing the price of the complementary good would have a negative coefficient in the demand function. For example, Q_d = a - P - P_g where Q is the quantity of automobiles demanded, P is the price of automobiles and P_g is the price of gasoline. The other main category of related goods are substitutes. Substitutes are goods that can be used in place of the primary good. The mathematical relationship between the price of the substitute and the demand for the good in question is positive. If the price of the substitute goes down the demand for the good in question goes down.

Personal Disposable Income: In most cases, the more disposable income (income after tax and receipt of benefits) you have the more likely you are to buy.

Tastes or preferences: The greater the desire to own a good the more likely you are to buy the good There is a basic distinction between desire and demand. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one's desires into effect. It is assumed that tastes and preferences are relatively constant.

Consumer expectations about future prices and income: If a consumer believes that the price of the good will be higher in the future he is more likely to purchase the good now. If the consumer expects that his income will be higher in the future the consumer may buy the good now.

Population:If the population grows this means that demand will also increase.

Nature of the good:If the good is a basic commodity, it will lead to a higher demand

This list is not exhaustive. All facts and circumstances that a buyer finds relevant to his willingness or ability to buy goods can affect demand. For example, a person caught in an unexpected storm is more likely to buy an umbrella than if the weather were bright and sunny.

Famous quotes containing the words factors, affecting and/or demand:

“Language makes it possible for a child to incorporate his parents’ verbal prohibitions, to make them part of himself....We don’t speak of a conscience yet in the child who is just acquiring language, but we can see very clearly how language plays an indispensable role in the formation of conscience. In fact, the moral achievement of man, the whole complex of factors that go into the organization of conscience is very largely based upon language.”
—Selma H. Fraiberg (20th century)

“It is a relief to read some true book, wherein all are equally dead,—equally alive. I think the best parts of Shakespeare would only be enhanced by the most thrilling and affecting events. I have found it so. And so much the more, as they are not intended for consolation.”
—Henry David Thoreau (1817–1862)

“Just as the performance of the vilest and most wicked deeds requires spirit and talent, so even the greatest demand a certain insensitivity which under other circumstances we would call stupidity.”
—G.C. (Georg Christoph)