The seven factors which determine the demand for goods are as follows: 1. Tastes and Preferences of the Consumers 2. Incomes of the People 3. Changes in the Prices of the Related Goods 4. The Number of Consumers in the Market 5. Changes in Propensity to Consume 6. Income Distribution. In other words, these other things determine the position and level of the demand curve. If these other things or the determinants of demand change, the whole demand schedule or the demand curve will change.
As a result of the changes in these factors or determinants, a demand curve will shift above or below as the case may be. An important factor which determines demand for a good is the tastes and preferences of the consumers for it.
For example, a few years back when Coca Cola plant was established in New Delhi demand for it was very small. The result of this is that the demand for Coca-Cola has increased very much. In economics we would say that the demand curve For Coca Cola has shifted upward. In economics we say that the demand curve for these goods will shift downward. The demand for goods also depends upon incomes of the people. The greater the incomes of the people the greater will be their demand for goods.
In drawing a demand schedule or a demand curve for a good we take incomes of the people as given and constant. When as a result of the rise in incomes of the people, the demand increases, the whole of the demand curve shifts upward and vice versa. The greater income means the greater purchasing power.
It is because of this reason that the increase in income has a positive effect on the demand for a good. When the incomes of the people fall they would demand less of the goods and as a result the demand curve will shift below. For instance, during the planning period in India the incomes of the people have greatly increased owing to the large investment expenditure on the development schemes by the Government and the private sector.
As a result of this increase in incomes, demand for food-grains has greatly increased which has resulted in rightward shift in the demand curve for them. Likewise, when because of drought in a year the agricultural production greatly falls, incomes of the farmers decline.
The demand for a good is also affected by the prices of other goods, especially those which are related to it as substitutes or complements. When we draw a demand schedule or a demand curve for a good we take the prices of the related goods as remaining constant.
Therefore, when the prices of the related goods, substitutes or complements, change the whole demand curve would change its position; it will shift upward or downward as the case may be. When price of a substitute for a good falls, the demand for that good will decline and when the price of the substitute rises, the demand for that good will increase. Equilibrium prices typically remain in a state of flux for most goods and services because factors affecting supply and demand are always changing.
Free, competitive markets tend to push prices toward market equilibrium. The market for each good in an economy faces a different set of circumstances, which vary in type and degree.
In macroeconomics, we can also look at aggregate demand in an economy. Aggregate demand refers to the total demand by all consumers for all good and services in an economy across all the markets for individual goods. Because aggregate includes all goods in an economy, it is not sensitive to competition or substitution between different goods or changes in consumer preferences between various goods in the same way that demand in individual good markets can be.
Fiscal and monetary authorities, such as the Federal Reserve , devote much of their macroeconomic policy making toward managing aggregate demand. If the Fed wants to reduce demand, it will raise prices by curtailing the growth of the supply of money and credit and increasing interest rates. Conversely, the Fed can lower interest rates and increase the supply of money in the system, therefore increasing demand.
When unemployment is on the rise, people may still not be able to afford to spend or take on cheaper debt, even with low interest rates. Board of Governors of the Federal Reserve System. Behavioral Economics.
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We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Introduction to Microeconomics. Microeconomics vs. Supply and Demand Basics. Microeconomics Concepts. Economics Microeconomics. What is Demand? The increase in consumers can happen when more and more favored substitute goods than a specific commodity. When the seller expands to a new market to distribute goods, or when there is a growth in the population, the demand for a specific good can also escalate.
Tastes and preferences of the consumer have a direct influence on the demand for a commodity. This can be applied for products in fashion, customs, habits, etc. For example, if a commodity in fashion is on trend and is preferred by the consumers, the demand for such a commodity will definitely rise. On the other hand, demand for it will fall, if the consumers have no taste or preference for that commodity.
If the price of a certain commodity is expected to increase in near future, the consumer will buy more of that commodity than what they normally buy. In that situation, they won't have to pay a higher price in the future. If the price of petrol is expected to rise in the next few days, people will rush for fuel. Similarly, when the consumers expect that in the future the prices of goods will fall, then in the present they will postpone a part of the consumption of goods with the result that their present demand for goods will decrease.
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