Factors causing Changes in Demand/ Determinants of Demand

Factors causing Changes in Demand/ Determinants of Demand:

While explaining the law of demand, we have stated that, other things remaining the same (ceteris paribus), the demand for a commodity inversely with price per unit of time. The other things have an important bearingdemand for a commodity.

They bring about changes in demand independently of changes in price.  These non-price factors or shift factors or determinants which influence demand are as follow.

(i). Changes in population: If the population of a country increases on account of immigration or though high birth rate or on account of these factors, the demand for various kinds of goods will shift upward to the right.

The nature of the commodities demanded will depend on the taste of the consumers. If due to high net production rate, the percentages of children to the total population increases in a country, there will greater demand for toys, children food, etc. similarly, if the percent of aged people to the total population increases, the demand for walking sticks, arterial teeth etc. will increase.

(ii). Changes in tastes and fashions: Demand for a commodity may change due to changes in tastes and fashions. For example, people develop a taste for coffee. There is than a decrease in the demand for tea. The demand curve for tea shift to the left of the original demand curve.

Similarly women’s fashions are usually ever changing. Sometimes they keep hair long and sometimes short. So, whenever there is a change in their hair style, the demand for hairpins, hair nets, etc. is generally affected.

(iii) Changes in income: when the income of consumers increase generally leads to an increase in the demand for some commodities. For example, when income of people increases, they begin to spend money on those which were previously regarded by them as luxuries, semi luxuries and reduce the expenditure on inferior goods.

Take the case of a man whose income has increased from Tk. 1000 to Tk. 20,000 per month. His consumption of wheat will go down because he now spends more money on the superior food such as cake, fish, daily products, fruits, etc.

(iv) Changes in the distribution of wealth: If an equal distribution of wealth is brought about in a country, then there will be less demand for expensive luxuries goods. There will be more demand for necessaries and comfort items.

(v) Changes in the price of substitutes: If the price of a particular commodity rises, people may stop further purchase of that commodity and spend money on its substitute which is available at a lower price. Thus we find a change in demand can also be brought about by a change in the price of the substitute.

(vi) Changes in the trade cycle: The total quantity of goods demanded is also affected by the cyclical fluctuations in economic activities. If the trade is prosperous, the demand for raw materials, machinery, etc. increases. If on the other hand, the trade period is dull, the demand for, producer’s goods will fail sharply as compared to the demand for consumer goods.

(vii) Climate and weather conditions: The climate and weather conditions have an important bearing on the demand of a commodity. For instance, the consumer’s demand for woolen cloths increases in winter and decreases in summer.