Therefore, larger the population larger will be the demand for a product, when price, per-capita income, taste and preference are given. For example, bread and butter, car and petrol, mattress and cot, etc. For example, petrol is a complement to car and scooter, butter and jam to bread, milk and sugar to tea and coffee, mattress to cot, etc. If an economy is growing, it will have increased demands for goods of better quality. Price of the Related Goods or Products The is also affected by the change in the price of its related goods. The Availability of Substitutes: Of all the factors determining price elasticity of demand the availability of the number and kinds of substitutes for a commodity is the most important factor.
For instance, most of the South Indians are non-vegetarian; therefore, the demand for non- vegetarian products is higher in Southern India. The total number of buyers in the market expanded. Polyester can reduce the use of cotton in clothing if the price of cotton increases. Recently more sophisticated methods have been developed for the study like simultaneous equation and mathematical programming which helps in arriving at precise results. X increases, then he may increase the pocket money of his children and buy luxury items for his family. However, all these factors are not equally important. Similarly, an expected increase in income increases the demand for a product.
The relation between income and demand for an inferior good is under the assumption that other determinants of demand remain the same demand for such goods rises only up to a certain level of income, and declines as income increases beyond this level. Consumer goods and services can be grouped under four categories: essential goods, inferior goods, normal goods, and prestige or luxury goods. The extent to which these factors influence demand depends on the nature of a product. For example, jewelry, stone, gem, luxury cars, etc. Income of the consumer:- Demand for a commodity is also affected by income of the consumer.
For instance, tobacco farming requires land, labor, and fertilizer. When people expect that the value of something will rise, they demand more of it. Availability of Credit: The purchasing power is influenced by the availability of credit. If national income is unevenly distributed, i. Changes in Demand Changes in demand take place in two ways: 1 Increase and decrease in demand; and 2 Extension and contraction in demand. It is the availability of close substitutes that makes the consumers sensitive to the changes in the price of Campa Cola and this makes the demand for Campa Cola elastic. Other factors: the weather and governmental policies that may expand or contract the economy affect the demand for particular products or services.
Technology rarely deteriorates and it ensures the business remains efficient therefore a constant supply of the goods and services. Advertisement beyond this point will make only marginal impact on demand. Shifting of demand curve renders the demand analysis difficult. Consumer income: the higher the consumer income, the higher the demand and vice versa. If demand for final product increases, the derived demand for related product also increases. If you do not include the words, the email will be deleted automatically.
Substitutes: Refer to goods that satisfy the same need of consumers but at a different price. Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease. The demand function must be made explicit and clear for use in managerial decision making. In such a case, millet and kerosene are inferior goods for the consumer. The quantity of a given product whether goods or services that is purchased by a consumer depends on a number of determinants. This means the whole range of price quantity relationship and not just the quantity demanded at a given price per unit of time. It tends to saturate beyond this level of income.
Determinants of demand : — Individual demand :- Demand for a commodity increases or decreases due to a number of factors. For complements, an increase in the price of one of the goods will decrease demand for the complementary good. Clothing, household furniture and automobiles are some of the important examples of this category of goods. These effects have a positive effect on demand. In many cases, derived demand of a product is due to its being a component part of the parent product. Tastes and Preferences of Consumers: Play a major role in influencing the individual and market demand of a product. Some others do so because they want to exhibit their affluence.
High tax rate would generally mean a low demand for the goods. While other determinants of demand, e. Therefore, people with higher current disposable income spend a larger amount on goods and services than those with lower income. If the number of consumers increases in the market, the consumption capacity of consumers would also increase. However, these factors are held constant according to the law of supply to alleviate the effect of the law of supply especially with relation with quantity supplied and the supply price. Or, when people expect pay revisions, they wait for major purchases till pay is revised.
Complementarity between Goods: Complementarity between goods or joint demand for goods also affects the price elasticity of demand. Apart from its level, the distribution pattern of the national income also determines the overall demand for a product. Tea and coffee, hamburgers and hot-dog, alcohol and drugs are some examples of substitutes in case of consumer goods by definition, the relation between demand for a product and price of its substitute is of positive nature. Lots of educational videos are published on social media aiming the above purpose. Be sure to include the words no spam in the subject.
Postpone of the consumption Those commodities whose consumption can be postponed will be elastic. So, if price expected increase, demand curve for today will shift to the right increase. Goods that decrease in demand as income increases are inferior goods such as used cars, salt-fish and low grade rice. That also means that when prices drop, demand will grow. Review: A change in quantity demanded is caused by a change in its own price of the good. Expectations for a lower income or lower prices decrease the quantity demanded. The substitution effect reduces demand for a particular resource when the cost of another resource that can substitute as an input declines.