Determinants of Demand

The five determinants of demand are:

Price of the good or service. Prices of related goods or services. These are either

complementary, which are things that are usually bought along

with the product in demand. They could also be substitutes for the product in demand. Income of those with the demand. Tastes or preferences of those with the demand. Expectations. These are usually about whether the price will go up.

. Disposable income

. Credit availability
. Stock of liquid assets in the hands of consumers . Stock of durable goods in the hands of consumers . Keeping up with the Joneses . Consumer expectations . Price of the Commodity . price of related goods. . Price of the good . Income of the consumer . Future expectations . Credit facilities . Composition of population . Distribution of income

factors affect of demand

Price - The Law of demand states that when prices rise, the quantity demanded falls. This also means that, when prices drop, demand will rise. People base their purchasing decisions on price, if all other things are equal. The reverse, of course, is

also true. When demand rises, businesses will usually raise the
price to avoid being out of stock and disappointing customers. Conversely, when demand falls, businesses will usually drop the

price, even if only temporarily for a sale, to sell more of the

good or service.

Cont
Income - When income rises, so will the quantity demanded. When income falls, so will demand. However, even if your income doubles, you will buy twice as much of a particular good or service. There's only so many pints of ice cream you'd want to eat, no matter how

rich you are. That's where the concept of marginal utility comes into
the picture. The first pint of ice cream tastes delicious. You might have another. But after that the marginal utility starts to decrease to

the point where you don't want any more. (At least until tomorrow.)

Opportunity Cost
Opportunity costs may be assessed in the decision-making process of production. If the workers on Indian railway can produce either 5 cruor of procurement or 10 cruor of row material, then the opportunity cost of producing 5 cruor of procurement is the 10 cruor of row material (assuming the production possibilities frontier is linear). Indian railways would make rational decisions by weighing the sacrifices involved.

Cont
Explicit costs

Explicit costs are opportunity costs that involve direct

monetary payment by producers. The opportunity cost of the factors of production not already owned by a producer

is the price that the producer has to pay for them. For
instance, Indian railway spends 10 cr on row material and their opportunity cost is 10 cr. Indian railways has sacrificed

10 cr, which could have been spent on other factors of

production.

 Implicit costs

Cont

Implicit costs are the opportunity costs that in factors of

production that a producer already owns. They are

equivalent to what the factors could earn for Indian railway in alternative uses, either operated within Indian railway . For example, A firm pays $300 a month all year for rent on a warehouse that only holds product for six months each year. The firm

could rent the warehouse out for the unused six months, at
any price (assuming a year-long lease requirement), and that would be the cost that could be spent on other factors of production.