Question

Explain six factors that affect market demand for a commodity.

Hint:

Demand determinants: own price, related-goods' prices, income, tastes, number of buyers, expectations.

Answer 1

Step 1: Price of the commodity itself:
By the law of demand, as the price of a good falls, consumers buy more of it (and vice versa), so its own price and quantity demanded are inversely related — this is the most direct determinant.

Step 2: Price of related goods:
For a substitute (e.g. tea vs coffee), a rise in the substitute's price increases demand for this good. For a complement (e.g. car and petrol), a rise in the complement's price decreases demand for this good, since the two are used together.

Step 3: Income of consumers:
For a normal good, demand rises as income rises. For an inferior good (e.g. coarse cereals), demand actually falls as income rises, because consumers switch to better alternatives.

Step 4: Tastes and preferences:
A favourable shift in fashion, advertising, or social trends toward a good raises its demand at every price; an unfavourable shift (a good going out of fashion, or health concerns) reduces it.

Step 5: Number of buyers/consumers in the market:
Since market demand is the sum of every individual buyer's demand, an increase in the number of buyers (e.g. population growth, market expansion) raises total market demand even if each individual's own demand is unchanged.

Step 6: Consumers' expectations about future price/income:
If consumers expect the price to rise in future (or their income to fall), they tend to buy more now, raising current demand; the opposite expectation lowers current demand.

Final Answer:
The six determinants of market demand are: the good's own price, prices of related (substitute/complement) goods, consumer income, tastes and preferences, the number of buyers, and expectations about future prices/income.