Question

Explain determinants of demand ​

Answer 1

When factors other than price changes, demand curve will shift. These are the determinants of the demand curve. ... Income: A rise in a person's income will lead to an increase in demand (shift demand curve to the right), a fall will lead to a decrease in demand for normal goods.

Answer 2

An increase or decrease in any of these factors affecting demand will result in a shift in the demand curve. Depending on whether it is an inward or outward shift, there will be a change in the quantity demanded and price.

1. Normal Goods

When there is an increase in the consumer’s income, there will be an increase in demand for a good. If the consumer’s income falls then, there will be a fall in demand.

2. Change in Preferences

If there is a change in preferences, then there will be a change in demand. For example, yoga became mainstream a couple of years ago, and health enthusiasts promoted its benefits. This trend led to an increase in demand for yoga classes.



3. Complimentary Goods

When there is a decrease in the price of compliments, then the demand for its compliments will increase. Complementary goodsare goods you usually buy together, like bread and butter, tea and milk. If the price of one goes up, the demand for the other good will fall. For example, if the price of yoga classes fell then there would be an increase in demand for yoga mats.

4. Substitutes

An increase in the price of substitutes will affect the demand curve. Substitutes are goods that can consumers buy in place of the other like how Coca-Cola & Pepsi are very close substitutes. If the price of one goes up, the demand for the other will rise. For example, if meditation classes became more expensive then there would be an increase in demand for yoga classes.

5. Market Size

If the size of the market increases, like if a country’s population increases or there is an increase in the number of people in a certain age group then the demand for products would increase. Simply put, the higher the number of buyers, the higher the quantity demanded. For example, if the birth rate suddenly skyrocketed, then there would be an increase in demand for baby products.

6. Price Expectations

When there is an expectation of a price change, if people expect the price of a good to increase shortly, then they are more likely to purchase sooner, which would increase demand for the product. For example, if people are expecting the price of a laptop to fall then they will delay their purchase till the price lowers.