Factors affecting demand

• Price of a good

  • When the price of a good is high, the qty dd will be low.
  • When the price of a good is low, the qty dd will be high.
• Price of substitute goods

  • Substitutes are goods that can replace each other and provide equal satisfaction.
  • Increase in price of a good, will lead to increase in demand for a substitute and lead to decrease in demand for the good. e.g If the price of tea increases , its demand will decrease and the demand for its substitute coffee will increase.
• Price of complementary goods

  • Complementary goods - goods that must be bought and used together.
  • Increase in price of one good is likely to lead to decrease in demand of the other good. e.g If the price of a car increases , its demand will decrease and so will the demand for petrol.
• Income level of the consumer

  • The higher the income level of the consumer, the higher the demand for goods and services.
  • The lower the income level of the consumer, the lower the demand for goods and services.
• Population

  • Population refers to the number of people in a given area.
  • When population increases, demand for goods increases.
  • When population decreases, demand for goods decreases.
• Advertising

  • Advertising creates awareness that may lead to either increased or decreased demand.
  • Appealing advertising leads to higher demand.
  • Advertising that is not appealing will lead to low demand.
• Changes in tastes,fashions and preferences.

  • Positive change for some goods will lead to increased demand.
  • Negative change for some goods will lead to decreased demand.
• Government policies

  They are - Taxation , Subsidy and rules and regulations.
• Taxation

  • A tax is a compulsury fee paid to the government by individuals or businesses in a country.
  • Taxation is the process of collecting tax.
  • When a tax is imposed/introduced on goods and services it increases the price of the good or service ,reducing the demand for the good or service.
  • When a tax is removed from a good or service it reduces the price of the good or service , increasing the demand for the good or service.
• Subsidy

  • A subsidy is a financial grant given by the government to producers to reduce te cost of production and increase supply.
  • The supply will be sold at a cheaper price, increasing demand.
• Rules and regulations

  • These are laws imposed/introduced by the govt on goods and services in order to either increase or decrease demand for the particular good or service.