The factors which determine demand for a commodity are the following:
(i) Tastes and Preferences: The demand of any commodity also depends on the taste and preferences of consumers, and changes from time to time. Things which are more in fashion, are more in demand than those that are out of fashion. Consumers can also leave the baggage before their being fully utilized and prefer other accessories in fashion. For example, colour television is more in demand and more and more people are leaving their black and white television, even if they can use it for a few more years.
(ii) Price of the Commodity : Ceteris Paribus i.e., other things being the same, the demand of a commodity is inversely propertional to its price, which means that the increase in the price of a commodity decreases its purchases and vice-versa. This is due to income and substitution effect.
(iii) Price of Related Goods: Complementary goods are those goods that are consumed together or simultaneously. For example, tea and sugar, automobiles and petrol, pen and ink are used together. When commodities are complements, a fall in the price of one (other things being equal) will cause the demand of the other to rise. For example, a fall in the price of cars would lead to a rise in the demand for petrol. Similarly, a fall in the price of pens, will cause a rise in the demand for ink. The reverse will be the case when the price of a complement rises.
Substitute goods are those goods which can be used easily in place of one another. For example, tea and coffee, ink pen and ball pen, are substitutes for each other and can be used in place of one another easily. When goods are substitutes, a fall in the price of one (Ceteris Paribus) leads to a fall in the quantity demanded of its substitutes. For example, if the price of tea falls, people will try to substitute it for coffee and demand more of it and less of coffee, i.e., the demand for tea will rise and that of coffee will fall.
(iv) Level of Income of the Household : Other things being equal, the demand for a commodity depends upon the money income sf the household. In most cases, the larger the average money income of the household, the larger is the quantity demanded of a particular good. However, there are certain commodities for which quantities demanded decrease with an increase in money income.
These goods are called Inferior Goods. Even in the case of other goods, the response of quantities demanded to changes in their prices is not of same proportions. If goods are such that they satisfy the basic necessity (food, clothing, shelter) of life, a change in their prices although will cause an increase in demand for these necessities this increase will be less than proportionate to the increase in income, as compared to other non-durable goods in the overall consumption pattern and a rise in importance of durable goods such as a TV, car, house, etc.
