Determinants of Demand: What Does it Mean?

The variables that affect the economic demand for a good or a service are known as demand determinants.

Demand

6 Determinants of Demand

  • Consumer preferences. Occupational traits, age, personality traits, advertising, and product quality are all important variables influencing customer behaviour and, consequently, demand.
  • Prices of related products. A product’s price increase will result in less demand for its complementary product as a whole. The demand for a substitute product will rise in response to a rise in the price of one product, on the other hand.
  • Consumer income. Demand rises in direct proportion to consumer income, and vice versa.
  • Consumer expectations. The quantity requested increases as costs or income expectations rise. Demand is reduced when lower income or price expectations are held.
  • The number of buyers. The quantity demanded increases with the number of purchasers, and vice versa.
  • Other factors. The demand for specific goods or services is impacted by the economy’s potential growth or contraction as well as the weather and governmental actions.

Let’s examine a case in point.

Example

Martins needs to refuel his vehicle. He discovers at the petrol station that the gallon of gas now costs $5. Martins lost his job recently, which has caused him some financial difficulties. He cannot afford to pay a high petrol price as a result. What will Martins do next?

Martins decides to spend less on a complementing good like tyres because his car uses petrol and he cannot replace it with a substitute good, which would be a car running on electricity. In order to offset the increase in petrol prices, Martins will purchase cheaper tyres the next time he needs to change his tyres.

What if Martins predicts that gas prices will rise even more?

Martins is more likely to fill up his car with gas more frequently if he anticipates a rise in gas prices. To take advantage of the current gas price, he will start fueling the car every other day rather than once a week.