Explain three factors that can bring about an increase in the market demand for a commodity.
Answers
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(1) Price of Commodity: The price of commodity is the most important factor that determines the demand of a commodity. As a matter of fact, there is inverse relationship between the price of the commodity and the quantity demanded.
It means that the price and quantity demanded move in opposite direction. For example, lower the price, higher is the demand. On the contrary, higher is the price; lower is the demand of the commodity.
(2) Prices of Complementary Goods and substitutes: The demand for a commodity is affected by the prices of complementary goods and also of substitutes. When the price of petrol increases the demand for scooter or motor cycle and car will decrease. Similarly, when the prices of motor cars increased people demanded more of scooters. The prices of scooters increased.
(3) Taste, Preference and Habits: The demand of a particular commodity depends to a great extent, upon the tastes, habits, advertisements, new inventions, customs, fashions and preference of the people.
The person will demanded only items of prevailing customs or his preferences even at a higher price. Similarly, any commodity of the latest fashion is in more demand even at a higher price, as compared to that item which is now out of fashion.
(4) Population: An increase in population of region will result in an increased demand of various goods. Also, the composition of population determines the demand of certain goods proportionately. For example, an increased number of females in the region will generate more demand for sarees, ornaments, cosmetics etc.
(5) Income: When income of the consumers rise their entire consumption increases. They consume more at the prevailing price or even at the same price. They switch over from inferior goods or necessary goods to luxuries. With decrease in income their demand will decreases even at the same price.
(6) State of Economic Activity: The demand for commodities also depends upon prevailing business conditions in the country. For example, during the inflationary period, more money is in circulation and people have more purchasing power.
This causes an increase in demand of various goods even at higher prices. Similarly, during deflation (depression), the demand for various goods reduces in spite of lower prices because people do not have enough money to buy the things.
(7) Government Policy: Economic policy adopted by the government also influences the demand for commodities. If the government imposes taxes on various commodities in the form of sales tax, excise duties, octroi etc., the price of these commodities will increase. As a result, the demand of such commodities is very likely to fall.
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the factors that increase the market demand is
1 equal distribution of income among the poor and the rich if the income is equally distributed then the market demand will rise as every one will be able to purchase the goods equally.
2 increase in population : when the population increases their is also increase in the market demand and vice versa