Factors of Demand

Price isn’t the only factor that affects quantity individual demands. So what other factors of demand that change quantity Individual demands?

Factors of Demand

What determines the quantity an Individual demand. which is the amount of the good that buyers are willing and able to purchase.

To keep things simple, let’s keep in mind a particular good. That is ice cream for our example.

WHAT DETERMINES THE QUANTITY INDIVIDUAL DEMANDS

Consider your own demand for ice cream. How do you decide how much ice cream to buy each month, and what factors affect your decision?

Here are 6 factors of demand determine the quantity an Individual demands…

  1. Price
  2. Income
  3. Prices of Related Goods
  4. Tastes
  5. Expectations
  6. Changes in Demographic

01 Price

If the price of ice cream rose to $20 per scoop, you would buy less ice cream.

You might buy frozen yogurt instead. If the price of ice cream fell to $0.20 per scoop, you would buy more.

Because the quantity demanded falls as the price rises and rises as the price falls, we say that the quantity demanded is negatively related to the price.

This relationship between price and quantity demanded is true for most goods in the economy and, in fact, is so pervasive that economists call it the law of demand.

Other things equal, when the price of good rises, the quantity demanded of the good falls.

02 Income

What would happen to your demand for ice cream if you lost your job one summer?

Most likely, it would fall. A lower income means that you have less to spend in total, so you would have to spend less on some and probably most other  goods.

If the demand for a good falls when income falls, the good is called a normal good.

Not all goods are normal goods. If the demand for a good rises when income falls, the good is called an inferior good. An example of an inferior good might be bus rides.

As your income falls, you are less likely to buy a car or take a cab, and more likely to ride the bus.

Suppose that the price of frozen yogurt falls. The law of demand says that you will buy more frozen yogurt.

At the same time, you will probably buy less ice cream. Because ice cream and frozen yogurt are both cold, sweet, creamy desserts, they satisfy similar desires.

When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes.

Substitutes are often pairs of goods that are used in place of each other. Such as hot dogs and hamburgers, sweaters and sweatshirts, and movie tickets and video rentals.

Now suppose that the price of hot fudge falls. According to the law of demand, you will buy more hot fudge. Yet, in this case, you will buy more ice cream as well, because ice cream and hot fudge are often used together.

When a fall in the price of one good raises the demand for another good, the two goods are called complements.

Complements are often pairs of goods that are used together, such as gasoline and automobiles, computers and software, and skis and ski lift tickets.

04 Tastes

The most obvious determinant of your demand is your tastes.

If you like ice cream, you buy more of it. Economists do not try to explain people’s tastes because tastes are based on historical and psychological forces that are beyond the realm of economics.

Economists do, however, examine what happens when tastes change.

05 Expectations

Your expectations about the future may affect your demand for a good or service today.

For example, if you expect to earn a higher income next month, you may be more willing to spend some of your current savings buying ice cream.

As another example, if you expect the price of ice cream to fall tomorrow, you may be less willing to buy an ice-cream cone at today’s price.

06 Changes in Demographic

The proportion of elderly citizens in the China population is rising.

In the 1980’s, only 5 percent of the Chinese population was over 65.

A report released by a government think tank forecasts by 2050 China’s older population will likely swell to 330 million, or a quarter of its total population.

A society with relatively more children, like China in the 1960s, will have greater demand for goods and services like Icecream, tricycles and baby food.

However, A society with relatively more elderly persons, as China is projected to have by 2050, has a higher demand for nursing homes and hearing aids.

Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve.

We hope this gives you a good grasp on the concept of  Factors of Demand. 

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