Determinants of Demand:

The demand is influenced by the following factors:

a) Tastes and Preferences of the Consumer: The changes in demand for various goods occur due to changes in fashion, and massive advertisement by the sellers.

b) The income of the People: The greater the incomes of the people, the greater will be their demand for goods and vice versa. Thus, there is a positive relationship between income and demand when all other factors are kept constant.

c) Price of the Commodity: Greater the price of the commodity, the lesser will be its demand and vice-versa. Thus, there is a negative relationship between the price and quantity demanded of a commodity, if all other factors remain constant.

d) Changes in the Prices of the Related Goods: When the price of a substitute for a good X falls, the demand for that good X will decline and when the price of the substitute rises, the demand for that good, will increase. Tea and coffee are very close substitutes. Therefore, when the price of tea falls, the consumers substitute tea for coffee and as a result, the demand for coffee declines. For goods that are complementary with each other, the change in the price of any of them would affect the demand of the other. For instance, if the price of milk falls, its demand would rise. Along with the demand for milk, the demand for sugar would also rise, as milk and sugar are complementary goods. Likewise, when the price of the car falls, the demand for them would increase which in turn will increase the demand for petrol.

e) Population: As population increases: the number of consumers would also increase and as a result, more goods will be purchased.

f) Income Distribution: In a country with equitable distribution of income, there will be lesser demand for certain luxury goods, while in a country where the income is unequally divided among the very rich and very poor people, the demand for such luxury goods will be more.

g) Expectations about Future Prices: If consumers expect that the price of a good to rise sharply in the near future, they may buy more of that good now itself so as to avoid paying higher prices later.