Factors that determine the demand for a product (determinants of demand)

Business studies study module

Demand is the quantity of a product that buyers are willing and able to buy at a given price over a given period of time.

  1. The price of a product:  if the price is low, more will be demanded, if high less will be demanded.
  2. The buyer’s income: the higher the people’s income the higher the demand for gods and services and vice versa.
  3. Government policy: if the government imposes high taxes on a commodity, it becomes expensive and less of it is demanded. The effects of a subsidy are to lower the price of the product leading to an increase in its demand. The government may also influence the demand of a product enacting laws that either limits or promotes the consumption of a product.
  4. The population: with many people available more of the goods are demanded and if the people are few, less is bought from the market.
  5. Tastes, fashions and preferences:  if people have a preference for a product they will demand more of it. If their preferences changes to another product, they will reduce the demand of the product they were using before.
  6. The distribution of incomes: where income is well distributed, the demand for goods and services is high as opposed to when the income in the hands of a few people.
  7. Future expectations of price changes: if the prices are expected to go up in the future, more goods will be demanded in the present and if the price is expected to go down in the future, fewer goods will be demanded in the present.
  8. The weather: certain goods are demanded more during certain weather conditions e.g heavy clothes during cold seasons or umbrellas during rainy seasons.
  9. Price of related products: for goods that are compliments of one another, e.g pen and ink, a fall in the price of one leads to an increase in the demand of the other. In the case of the goods that are substitutes of one another, e.g soda and fruit juice, an increase in the price of one leads to an increase in the demand of the other.
  10. The terms of sale: the better the terms of sale, for example, provision of credit or better discounts, the higher the demand for a given product.

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