6 important factors that determines changes in Demand

Demand changes due to two factors. Firstly demand changes due to price and secondly demand changes on account of changes in other factors other than price. When demand changes as a change in corresponding price this is said to be change in quantity demanded. On the other hand the change in demand due to other factors is known as "change in demand."

The whole demand schedule and demand curve change due to charge in the factors other than the price. There is complete shift of demand curve as a result of change in the factors other than price. Thus in the case of change in demand, there is complete change in demand function. A fall in demand leads to a downward shift of demand curve and a rise in demand cause the demand curve to shift upwards.

(1) Tastes and preferences of the consumer:

Tastes include fashion, habit, customs etc. A good for which consumers tastes and preferences are greater claim higher demand. Thus the demand curve lies at a higher level. With the change in consumer's taste and preference for particular commodity the demand for that commodity declines.

If the taste goes up its amount demanded becomes high even at a high price. Those goods which go out of fashion of people no longer remains attractive to them. So the demand for them decreases.

(2) Income of the people:

The demand for goods depends upon the income of the people. There is direct relation between income and demand for immodesties. A rise in income gives rise to greater purchasing power. 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.

(3) Changes in prices of the related goods:

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.

Tea and coffee are substitute’s goods but pen and ink are complementary commodities. 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.

(4) Future expectation:

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.

(5) Population:

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.

(6) Income distribution:

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.