Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsDemand5 Marks
Question
Define demand and explain factors affecting demand.
✓
Answer
Demand:
The quantity of a commodity which a buyer desires, is able and willing to buy at a given price at a given point of time is called demand.Demand is defined or determined by five factors namely:
Desire,
Willingness to buy,
Ability to buy,
A particular price and
A particular point of time.
All these five factors are necessary for defining demand.
The factors that determine demand i.e. determinants of demand of a commodity/service can be classified into two main parts. They are:
$(I)$ Price of commodity/service
$(II)$ Factors other than price (i.e. other determinants)
$(I)$ Price of a commodity/service:
Price of a good is the most important determinant of its demand.
When price of a good falls, a thoughtful consumer buys more and the demand expands. When price falls thoughtful consumers buys less and so demand contracts.
$(II)$ Other determinants:
$1.$ Tastes and preferences of a consumer:
Demand depends a lot on tastes and preferences of a consumer.
Tastes and preferences are associated with the likes and dislikes of a consumer as well as several other factors such as age, trends, etc.
Example:
If a person is fond of reading, his preference for reading will change with age.
At a young age, a person prefers to read story books, at adolescence he may prefer*to read novels and in old age*may prefer to read spiritual books.
$2.$ Income of a consumer:
The demand for a commodity increases with increase in the consumer’s income. Similarly, when his income falls, his demand for a good falls. Thus, there is a direct relationship between income and demand.
Inferior goods:
Contrary to this fact, there are some goods called inferior goods on which this direct relationship does not hold true.
In economics, an inferior good is a good whose demand decreases when consumer’s income rises or whose demand rises when consumer’s income decreases.
Example of inferior goods/services:
For example, travelling through inter-city bus is a cheaper (inferior) mode than air or rail travel, but is more time-consuming. When a consumer has less money he prefers traveling by bus i.e. demand for bus travel is more. However, when his income rises he prefers faster and more comfortable transport system such as private car or by air i.e. demand for bus travel decreases.
$3.$ Prices of related goods:
Goods such as french-fries and ketchup that are closely related to each other are called related goods. The price of refated goods is one of the other factors affecting demand.
Related goods are classified as either
Substitute goods or
Complementary goods.
The demand for a particular good depends upon the price and availability of its related goods, namely, substitute goods and complementary goods. For example, If the price of french-fries gets doubled the demand for ketchup may decline.
$4.$ Expectations about future prices:
An individual’s expectation about the future price of a good affects his current demand for that good. If the consumer expects the price of a good to rise in the future, his demand for that good increases in the current time and vice-versa.
5. Size and demographic profile of population:
The size of population, as well as the demographic profile of the people, impacts the total market demand for a good.
If the population of a region is large then total market demand will be more and vice-versa. Similarly, if majority of population belongs to a particular age-group then the demand for certain goods in the market will be more.
For example, a Cafe will be in more demand near colleges because of high concentration of youths.
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