Question

3. What are the factors that influence the demand curve in the current market? Briefly explain.

Answer 1

Demand: Demand for a commodity refers to the desire to buy a commodity backed with sufficient purchasing power and willingness to spend. When demand of a commodity changes due to change in price than it is known as change in quantity demanded and it leads to movement in the demand curve. While when demand of a commodity changes due to change in factors other than price than it is known as change in demand and it leads to shift of demand curve either rightward or leftward. Determinants of demand for a good:

1. The Price of Commodity: Other things remaining the same, with a rise in the price of the commodity, its demand contracts and with fall in the price, its demand extends. This inverse relationship between the price of a commodity and its demand is called Law of Demand. It causes movement of demand curve either upward or downward.

2. Price of related goods: Demand for a commodity is also affected by the change in the price of related goods like substitute goods or complementary goods. Substitute goods are goods which are used in place of one another. Increase in the price of one good increases the demand of other good and vice-versa. On the other hand, complementary goods are those goods which jointly satisfy a particular want of consumer. An increase in the price of one good decreases the demand of other good. It causes shift of demand curve either rightward or leftwards.

3. Income of the consumer: Increase in the income of consumer increases the demand of normal good while reduces the demand of inferior goods. It causes shift of demand curve either rightward or leftwards. Increase in the income shifts the demand curve rightwards and vice-versa.

4. Taste and Preference of the consumer: If consumers have favorable taste and preference for the good then demand of that good increases and vice-versa. If consumers have favourable taste and preference for the good then demand curve shifts rightwards and unfavorable taste for the commodity shifts it leftwards.

5. Expectation: If people expect that price of a commodity will reduce in near future then people demand less number of goods today and as a result, demand decreases and causes the demand curve to shift leftwards. When people expect that price of a commodity will increase increase in near future than present consumption increases and leads to rightward shift of demand curve.