In this post, we will discuss the top 7 important factors affecting demand for a commodity, first, let’s understand the demand.
The demand in economics means the desire to purchase the commodity-backed by willingness and the ability to pay for it.
Demand= Desire + Willingness to buy + Ability to pay.
The demand for a commodity depends on various factors which determines the quantity of a commodity demanded by various individuals or a group of individuals.
There are many factors affecting demand for a commodity, some of them are mentioned below –
The important determinants of demand for a commodity are explained below:
Factors affecting demand for a commodity:
1. Price of a commodity (Px):
The price of a commodity is a very important determinant of demand for any commodity. Other things remaining same,
if the price of the commodity increases, then the demand will be low
if the price for the commodity decreases, then the demand will be high.
So, the quantity demanded and price shows an inverse relationship in the case of normal goods.
2. Income (Y):
Consumer Income is another important determinant of demand for a commodity.
Change in consumer’s income influences demands for commodities. The demand for normal goods increases with the increasing level of income and vice versa. it shows a direct relationship between income and quantity demanded.
3. Price of related commodities:
The demand for a commodity is also affected by the price of other commodities, especially substitute or complementary goods.
Substitute Goods – Substitute Goods are those goods that can easily replace each other. For Instance Tea & Coffee. When the rise in the price of Tea causes a rise in demand for Coffee because there is no change in the price of coffee such goods are called substitute goods. In other words, the relation between two substitute goods is positive. In case the price of one commodity increases the demand for other.
Complementary Goods – Complementary goods are those goods that one purchased together. For Instance Car & Petrol. When there is a rise in the price of Petrol leads to a fall in demand for Cars such goods are called complementary goods. In other words, the relation between two complementary goods is negative. An increase in the price of one commodity leads to a decrease in demand for other.
The consumer’s taste and preferences are also factors affecting demand for a commodity such as changes in fashion, culture, tradition, etc. As the consumer’s taste and preference for particular commodity changes the demand for that particular commodity also changes. Therefore, the Taste and Preference of a consumer play an important role.
5. Advertising expenditure (A):
Advertising expenditure by a firm is also a factor affecting demand for a commodity. The advertisements by the manufacturer and sellers attract more customers towards the commodity. There is a positive relationship between advertising expenditure and demand for the commodity.
6. Consumers’ Expectations:
Consumer expectation is another factor affecting the demand for a commodity.
If due for some reason, consumers expect that in the near future prices of the goods would rise, then in the present, they would demand high quantities of the goods so that in the future they should not have to pay higher prices and vice versa.
7. Climatic Conditions:
The climatic conditions or weather of an area also determine the demand for commodities.
In the colder season, there is high demand for woolen clothes and in the hotter season, there is high demand for cotton cloths.