People use those commodities for certain urgent use in response to a rise in price. For example electricity can be used for a number of purposes like heating, lighting, cooking, cooling etc. If the electricity hill increases people utilise electricity for certain important urgent purpose and if the bill falls people use electricity for a number of other unimportant uses. Thus the demand for electricity is elastic. The demand for those goods whose consumption can be postponed for sometime is said to be elastic.
On the other hand if the commodities cannot be postponed and need to be fulfilled the demand for them is in elastic. Medicine for a patient, books for a student and milk for a child cannot be postponed. They are to be satisfied first. That is why the demand for those commodities is in elastic. Elasticity of demand also depends on the proportion of income spent on different goods.
The demand for those goods on which a negligible amount of the total income of the consumer is spent is said to be inelastic. Salt, edible oil, match box, soap etc account for a very negligible amount of the consumer income. That is why their demand is inelastic. The demand for high priced commodities is elastic. On the other hand the low priced goods is said to have inelastic demand. High priced commodities are luxurious goods and low priced goods are necessaries.
Luxurious goods are mainly consumed by the people of high income brackets. For example if the price of a colour TV falls from Rs to Rs the price comes to the reach of the people who were unable to buy at the old price. Now they rush to buy colour TV. Thus with a rise or fall in price the amount demanded of colour TV remarkably falls or rise.
But if the price of salt raises from Rs 2. A repeated and constant use of a commodity by a person forms habit. A habit can't be avoided. Thus in such a case the consumption of the commodity can't be abstained in spite of the rise in price.
The consumer has to satisfy his habit regardless of change in price. Thus the demand for habitual commodities is fairly inelastic. The demand for durable commodities is elastic whereas the demand for less durable commodity is inelastic. Durable commodity is used over a long period of time. The utility of a durable good is destroyed continuously. Once a durable good is bought the buyer feels no want of it for a long period of time.
Thus the change rise or fall in price can't influence the demand. Thus the demand becomes elastic. The demand changes as a result of changes in price, other factors determining it being held constant.
We shall explain below in detail how these other factors determine market demand for a commodity. It may be noted that when there is a change in these non-price factors, the whole curve shifts rightward or leftward as the case may be. The following factors determine market demand for a commodity.
An important factor which determines the demand for a good is the tastes and preferences of the consumers for it. The changes in demand for various goods occur due to the changes in fashion and also due to the pressure of advertisements by the manufacturers and sellers of different products.
The demand for goods also depends upon the incomes of the people. The greater the incomes of the people, the greater will be their demand for goods. In drawing the demand schedule or the demand curve for a good we take income of the people as given and constant.
When as a result of the rise in the income 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. Therefore, when incomes of the people increase, they can afford to buy more. It is because of this reason that 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 a good and as a result the demand curve will shift downward.
For instance, as a result of economic growth 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, the demand for good grains and other consumer goods has greatly increased.
Likewise, when because of drought in a year the agriculture production greatly falls, the incomes of the farmers decline. As a result of the decline in incomes of the farmers, they will demand less of the cotton cloth and other manufactured products. 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 the demand schedule or the 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 the 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. For example, when price of tea and incomes of the people remain the same but the price of coffee falls, the consumers would demand less of tea than before.
Tea and coffee are very close substitutes. Therefore, when coffee becomes cheaper, the consumers substitute coffee for tea and as a result the demand for tea declines. The goods which are complementary with each other, the fall in the price of any of them would favorably affect the demand for the other.
For instance, if price of milk falls, the demand for sugar would also be favorably affected. When people would take more milk, the demand for sugar will also increase. Likewise, when the price of cars falls, the quantity demanded of them would increase which in turn will increase the demand for petrol. Advertisement expenditure made by a firm to promote the sales of its product is an important factor determining demand for a product, especially of the product of the firm which gives advertisements.
The purpose of advertisement is to influence the consumers in favour of a product.
Factors affecting demand The individual demand curve illustrates the price people are willing to pay for a particular quantity of a good. The market demand curve will be the sum of all individual demand curves.
The following are the factors which determine demand for goods: 1. Tastes and Preferences of the Consumers: An important factor which determines demand for a good is the tastes and preferences of the consumers for it. A good for which consumers’ tastes and preferences are greater, its demand would.
Demand elasticity measures how sensitive the quantity demanded of a good or service is to changes in other variables. Many factors are important in determining the demand elasticity of a good or. When examining demand factors, especially for businesses, it is important to realize that there is a relationship between Individual And Market Demand.. These two, though slightly different, share the same causes and are impacted by macro and micro economic variables in the same way, but not the same magnitude.
Five Determinants of Demand with Examples and Formula The Five Factors Affecting Demand Using Examples in the U.S. Economy. Share Flip Pin Email. Being aware of current government incentives can help you determine changes in supply and demand and understanding the key factors that drive the real estate market is essential to performing.