Determinants of Demand


1. Changes in Tastes and Fashions: The
demand for some goods and services is very susceptible to changes in tastes and Fashions.
2. Changes in Weather: An unusually dry summer results in a increase in the demand for cool drinks.
3. Taxation and Subsidy: If fresh taxes are levied or the existing rates of taxation on commodities are increased their prices go up. The subsidies will bring down the prices.
Therefore taxes reduce demand and subsidies raise demand.
4. Changes in Expectations:Expectations also bring about a change in demand.Expectation of rise in price in future results in increase in demand. 5. Changes in Savings: Savings and demand are inversely related.
6. State of Trade Activity: During the periods of boom and prosperity, the demand for all commodities tends to increase. On the contrary, during times of depression there is a general slackening of demand.
7. Advertisement: In advanced capitalistic countries advertising is a powerful instrument increasing the demand in the market.
8. Changes in Income: An increase in family income may increase the demand for durables like video recorders and refrigerators. Equal
distribution of income enables poor to get more income. As a result consumption level increases.
9. Change in Population: The demand for goods depends on the size of population. An increase in population tends to increase the demand for goods and a decrease in population tends to decrease the demand (if
other things remain constant).

Exceptions to the law of demand:
Normally, the demand curve slopes
downwards from left to right. But there are some unusual demand curves which do not obey the law and the reverse occurs.A fall in price brings about a contraction of demand and a rise in price results in an extension of demand. Therefore the demand curve slopes upwards from left to right. It is known as exceptional demand curve.

In the diagram 2.6, DD is the demand
curve which slopes upwards from left to
right. It shows that when price is OP1, OQ1
is the demand and when the price rises to OP2, demand also extends to OQ2.

Leave a Reply