(Use Diagram)
0.11. What are the various factors that determine the demand for a good. Explain the relationship
between the price of the good and its demand with the help of a diagram.
Answers
Answer:
price : relative price of good : population size
Answer:
Explanation:
FOLLOWING ARE THE IMPORTANT FACTORS THAT AFFECT DEMAND OF A COMMODITY:
(a) OWN PRICE OF THE GIVEN COMMODITY
• Own price is the most important determinant of demand.
• When own price of a commodity falls, its demand rises and when own price rises, its demand falls.
• Thus we can say that there is an indirect relation between price of a commodity and its quantity demanded.
(b) PRICE OF RELATED GOODS
RELATED GOODS ARE OF TWO TYPES – SUBSTITUTE AND COMPLEMENTARY
(i) SUBSTITUTE GOODS
• When the price of the substitute goods rises then demand for the given commodity also rises and vice-versa.
• Like, if Price of Maruti Swift increases, demand for i20 will rise.
(ii) COMPLEMENTARY GOODS
• (Car & Petrol) When price of the complementary goods rises then demand for the given commodity falls and vice versa.
• Like, if price of petrol rises, demand for cars fall.
(c) INCOME OF THE CONSUMER
● To check the effect of change in income of the households over their demand, goods are divided into two categories:
(i) Normal Goods (Positive relation)
These are the goods whose demand rises with the rise in income. E.g. Basmati Rise
(ii) Inferior Goods (Negative relation)
These are the goods whose demand falls with the rise in income and vice versa. e.g. Low quality rice.
(iii) Necessities:
A third category is also there, necessities, demand for these generally do not change with change in prices.
(d) TASTE AND PREFERENCES OF THE CONSUMER • Demand for a commodity is also affected by taste and preferences.
• It rises if there is a favorable change in the taste and preferences of the consumer and vice versa.
(e) MISCELLANEOUS • Future expectation about price and income also affect demand for a commodity in present.
• Suppose, if we expect rise in price in near future, then we’ll increase demand in present even at the same price.
Price of the commodity and its demand have inverse relationship.