Demand theory relates consumer demand for goods and services to their prices, forming the basis of the demand curve. Factors that determine demand include the size and characteristics of the population, weather, taxation, advertising, income levels, consumer preferences, the number of buyers, prices of related goods like substitutes and complements, and expectations of future prices and income. Demand increases with a larger population, higher incomes, lower substitute prices, lower complement prices, and expectations of future increases in prices or income.
Demand theory relates consumer demand for goods and services to their prices, forming the basis of the demand curve. Factors that determine demand include the size and characteristics of the population, weather, taxation, advertising, income levels, consumer preferences, the number of buyers, prices of related goods like substitutes and complements, and expectations of future prices and income. Demand increases with a larger population, higher incomes, lower substitute prices, lower complement prices, and expectations of future increases in prices or income.
Demand theory relates consumer demand for goods and services to their prices, forming the basis of the demand curve. Factors that determine demand include the size and characteristics of the population, weather, taxation, advertising, income levels, consumer preferences, the number of buyers, prices of related goods like substitutes and complements, and expectations of future prices and income. Demand increases with a larger population, higher incomes, lower substitute prices, lower complement prices, and expectations of future increases in prices or income.
Demand theory is a theory relating to the relationship between consumer demand for goods and
services and their prices. Demand theory forms the basis for the demand curve, which relates consumer desire to the amount of goods available.
Factors Determining Demand
1)Size and regional distribution of population: A rise in population leads to an increase in the number of consumers. As a result demand, increases. The greater the number of consumers, the greater the market demand for a commodity. Therefore, demand for a commodity is directly related to the size of the population. Regional distribution of a population also affects the demand. 2)Composition of population: If there are more children, demand for Coca Cola will increase. Similarly, if there are more old people, the demand will decrease. 3)Weather and climatic conditions: Changes in weather conditions also influence demand for a product. For example, a sudden rainfall on a hot summer day brings down the demand for cold drinks. 4)Taxation: Higher taxes imposed on a commodity will lower the demand for that commodity, and vice versa. 5)Advertisement effects: Preferences of customers can be affected by advertisement and publicity, leading to greater demand for a product. Bringing in Salman Khan has good effect on sales of Coke as he is followed in large numbers. 6) Income: A rise in a persons income will lead to an increase in demand, a fall will lead to a decrease in demand for normal goods. If people have good incomes in society then they can spend more on luxury items like Coke. 7)Consumer Preferences: Favorable change leads to an increase in demand, unfavorable change lead to a decrease. 8)Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease. 9) Price of related goods: a. Substitute goods -Price of substitute and demand for the other good are directly related. Example: If the price of Fruit Juices rises, the demand for soft drinks ( Coca Cola ) should increase. b. Complement goods -Price of complement and demand for the other good are inversely related. Example: if the price of pizza reduces, the demand for Coca Cola will increase as people regularly consume Coke with Pizza. 10) Expectation of future: a. Future price: consumers current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices. Say , if there is news that rates for Coca Cola will increase then people will make stock of the drinks. b. Future income: consumers current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income.