Tea and coffee are very close substitutes, therefore when coffee becomes cheaper, the consumers substitute coffee for tea and as a result the demand for tea declines. The goods which are complementary with each other, the change in the price of any of them would affect the demand of the other.
For instance, if price of the milk falls, the demand for sugar would also be affected. When people would take more milk or would prepare more khoya, burfi, rasgullas with milk; the demand for sugar will also increase. Likewise, when price of cars falls, the demand for them will increase which in turn will increase the demand for petrol Cars and petrol are complementary with each other.
The greater the number of consumers of a good, the greater the market demand for it. Now, the question arises on what factors the number of consumers of a good depends.
If the consumers substitute one good for another, then the number of consumers of that good which has been substituted by the other will decline and for the good which has been used in its place, the number of consumers will increase. Besides, when the seller of a good succeeds in finding out new markets for his good and as a result the market for his good expands the number of consumers of that good will increase. Another Important cause for the increase in the number of consumers is the growth in population.
The income of the people remaining constant, if their propensity to consume rises, then out of the given income they would spend a greater part of it with the result that the demand for goods will increase. On the other hand, if propensity to save of the people increases, that is, if propensity to consume declines, then the consumers would spend a smaller part of their income on goods with the result that the demand for goods will decrease.
It is thus clear that with income remaining constant, change in propensity to consume of the people will bring about a change in the demand for goods. If due to some reason, consumers expect that in the near future prices of the goods would rise, then in the present they would demand greater quantities of the goods so that in the future they should not have to pay higher prices. Similarly, when the consumers hope that in the future they will have good income, then in the present they will spend greater part of their incomes with the result that their present demand for goods will increase.
Distribution of income in a society also affects the demand for goods. If distribution of income is more equal, then the propensity to consume of the society as a whole will be relatively high which means greater demand for goods.
On the other hand, if distribution of income is more unequal, then propensity to consume of the society will be relatively less, for the propensity to consume of the rich people is less than that of the poor people.
Consequently with more unequal distribution of income, the demand for consumer goods will be comparatively less. This is the effect of the income distribution on the propensity to consume and demand for goods. But the change in the distribution of income in the society would affect the demand for various goods differently.
If progressive taxes are levied on the rich people and the money so collected is spent on providing employment to the poor people, the distribution of income would become more equal and with this there would be a transfer of purchasing power from the rich to the poor. As a result of this, the demand for those goods will increase which are generally purchased by the poor because the purchasing power of the poor people has increased and, on the other hand, the demand for those goods will decline which are usually consumed by the rich on whom progressive taxes have been levied.
You must be logged in to post a comment. Changes in Demand for Goods: Increase and Decrease in Demand. Extension and Contraction in Demand for Goods.
Leave a Reply Click here to cancel reply. Thus increase in income has a positive effect for a good. With a rise and fall in income the demand curve shifts upward and downward respectively. But in case of giffen goods the income effect is negative. The demand for a commodity is affected by the changes in the prices of other related commodities.
The related commodities may be i substitute and ii complementary. A commodity is said to be substitute only when it yields the same utility and satisfaction in place of other. Complementary goods are jointly demanded.
They are consumed untidily for satisfaction. When the price of a substitute of a good falls the demand for that good declines and when the price of the substitute rises, the demand for that good increases. In case of complementary goods there is opposite relationship between price of one commodity and the amount demanded for the other.
The effect in change in price of related goods on the amount demanded is called as Gross Demand. Present demand for a commodity also depends on the future expectation of the change in price. If people expect that the price of a commodity will rise in future, they will buy more even at a high price so as to escape the further rise in price in future.
Similarly any expectation of the fall in price in future will diminute demand for a commodity as people expect further fall in price.
Similarly if buyers expect their incomes to rise in future, they may increase the present demand. Rise of population also gives rise to demand for necessaries of life. The composition and size of population affect the demand. With high birth rate demand for milk food, medicines and garments increase. The rise in the proportion of adult, old and woman also shape the nature of demand accordingly. Income distribution in the society affects the demand for goods.
If the distribution of income is even then the demand for goods is greater. On the other hand if the distribution of income is unequal, the demand for consumer goods will be comparatively less.
Factors affecting demand The individual demand curve illustrates the price people are willing to pay for a particular quantity of a good. The market demand curve will be the sum of all individual demand curves.
The following are the factors which determine demand for goods: 1. Tastes and Preferences of the Consumers: An important factor which determines demand for a good is the tastes and preferences of the consumers for it. A good for which consumers’ tastes and preferences are greater, its demand would.
Demand elasticity measures how sensitive the quantity demanded of a good or service is to changes in other variables. Many factors are important in determining the demand elasticity of a good or. When examining demand factors, especially for businesses, it is important to realize that there is a relationship between Individual And Market Demand.. These two, though slightly different, share the same causes and are impacted by macro and micro economic variables in the same way, but not the same magnitude.
Five Determinants of Demand with Examples and Formula The Five Factors Affecting Demand Using Examples in the U.S. Economy. Share Flip Pin Email. Being aware of current government incentives can help you determine changes in supply and demand and understanding the key factors that drive the real estate market is essential to performing.