In economics, demand for a good or service refers to desire or willingness of the consumer to buy specific goods or services. Price can be considered as one of the most important factors influencing demand for a particular commodity. Generally, an increase in demand is indicated by a decrease in price.

Similarly, as the price of a commodity increases, its demand decreases. Therefore, it can be said that there is an inverse/indirect relationship between demand and price.

Other than price, there are some other factors which influence the demand for a product/commodity. Factors influencing demand for a commodity are also known as determinants of demand.

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Five Important Factors Influencing Demand

Changes in Purchasing Power/Income

Demand for a good/commodity is affected by change in buyer’s income. As the income of the buyer increases, his/her ability to buy a particular good/commodity also increases.

Hence, there is an increase in the demand. Similarly, when the income (purchasing power) of buyers is low, quantity demanded by them is relatively low. Goods are generally categorized as normal goods and inferior goods.

Demand for normal goods changes directly with the change in income. On the contrary, demand for inferior goods changes indirectly/inversely with the change in income.

Changes in Taste and Preferences

A change in customer taste and preferences can also influence the demand for a particular good /commodity. An individual’s preference may change because of a change in habit, a change in fashion, and so on. While a favorable change increases the demand, an unfavorable change decreases the demand for a good/commodity.

Changes in Price of Related Good/Commodity

Complementary goods and substitute goods are two types of related goods/commodities. Complimentary goods are the goods which are used together to satisfy a particular demand.

In case of complementary goods, an increase in price of one good/commodity results in a decline in the demand for the complimentary good/commodity. For Instance, car and petrol. It has been observed that an increase in the price of cars generally leads to a decline in demand for petrol.

In case of substitute goods, an increase in the price of one good/commodity leads to an increase in the demand for another good/commodity. For Instance, tea and coffee.  An increase in the price of tea would generally lead to an increase in the demand for coffee.

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Changes in Weather/Seasonal Changes

Seasonal changes can also the affect demand for a commodity. While demand for a particular good/commodity is high in one season, its demand is low in the other season.

For Instance, demand for air conditioners is more during the summer season whereas demand for heaters is more during the winter season. Similarly, demand for umbrellas/raincoats may increase during the monsoon season.

Changes in Number of Buyers/Changes in Population Rate

Number of buyers can also influence the demand levels. As the number of buyers increases, demand for a particular commodity may also increase and vice versa. For Instance, an increase in population rate may result in an increase in the demand for land.