In: Economics

# Determinants of demand

What are the various types of demand determinants? Explain.

## Solutions

##### Expert Solution

Producers’ Goods and Consumers’ Goods:

Producer’ goods are also called as capital goods. These goods are used in the production of other goods. Machinery, tools and implements, factory buildings, etc. are some of the examples of capital goods.Consumers’ goods are those goods, which are used for final consumption. They satisfy the consumers’ wants directly. Examples of consumers’ goods can be ready-made clothes, prepared food, residential houses, etc. The differentiation between a consumer good and a capital good is based on the purpose for which it is used, rather than, the good itself. A loaf of bread used by a household is a consumer good, whereas used by a sweet shop is a producer good.

Derived Demand and Autonomous Demand:

When the demand for a product is tied to the purchase of some parent product, its demand is called derived demand. For example, the demand for cement is derived demand, being directly related to building activity. Demand for all producers’ goods, raw materials and components are derived. Also, the demand for packaging material is a derived demand. However, it is hard to find a product in modern civilization whose demand is wholly and has supposed to have less price elasticity than autonomous demand.

Durable Goods and Non-Durable Goods:

Durable products present more complicated problems of demand analysis than products of non-durable nature. Sales of non-durables are made largely to meet current demand which depends on current conditions. Sales of durables, on the other hand, add to the stock of existing goods that are still serviceable and are subject to repetitive use. Thus it is a common practice to segregate current demand for durables in terms of replacement of old products and expansion of total stock.Demand analysis for durable goods is complex. Determination of demand for these goods has to take into consideration the replacement investment and expansion of the industry. The reasons for replacement investment are due to technological developments making the existing technology outmoded and the depreciation of the capital over a period of time.

Short-Run Demand and Long-Run Demand:

Short-run demand refers to the demand with its instant reaction to price changes, income fluctuations, etc. Long-run demand is that which will ultimately exist as a result of the changes in pricing, promotion or product improvement, after enough time has been allowed to let the market adjust itself to the new situation.

The determinants of demand; producer and consumer goods, derrived and autonomous demand, durable and non-durable goods, and short-run and long-run dmand.

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