Factors Affecting Demand

• Factors that can influence the demand for goods and services in an economy


  • Price of the Good or Service
  • Income Levels
  • Consumer Preferences + Tastes
  • Prices of Related Goods
  • Expectations of Future Prices or Income
  • Demographic factors
  • Government policies
  • External factors
• Price of the Good or Service


  The most fundamental factor affecting demand
• As the price of a good or service changes


  It typically leads to a change in the quantity demanded, following the law of demand
• When the price decreases, ceteris paribus

  The quantity demanded increases
• When the price increases, ceteris paribus


  The quantity demanded decreases
• Income Levels


  Changes in consumers' income levels can also impact their demand for goods and services
• For normal goods, as income increases


  Consumers tend to buy more of those goods
• For inferior goods, as income increases


  Demand for these goods may decrease because consumers switch to higher-quality substitutes
• Consumer Preferences + Tastes


  Play a significant role in shaping demand
• Changes in fashion trends, advertising, product quality, and consumer preferences

  Can all influence demand for particular goods and services
• Prices of Related Goods


  The prices of related goods, including substitutes and complements, can affect demand
• Substitute goods are those that can be used in place of each other (e.g., tea and coffee), and an increase in the price of one


  May lead to an increase in demand for the other
• Complementary goods are those that are typically consumed together (e.g., smartphones and mobile data plans), and an increase in the price of one


  May lead to a decrease in demand for the other
• Expectations of Future Prices or Income


  Consumers' expectations about future prices or income can influence their current demand
• If consumers expect the price of a good to increase in the future

  They may buy more of it now to take advantage of lower prices
• If consumers expect their income to increase in the future

  They may increase their current consumption