Tastes and Preferences of the Consumers: An important factor which determines demand for a good is the tastes and preferences of the consumers for it. A good for which consumers’ tastes and preferences are greater, its demand would be large and its demand curve will lie at a higher level. People’s tastes and preferences for various goods often change and as a result there is change in demand for them. The changes in demand for various goods occur due to the changes in fashion and also due to the pressure of advertisements by the manufacturers and sellers of different products. For example, a few years back when Coca Cola plant was established in New Delhi demand for it was very small. But now people’s taste for Coca Cola has undergone a change and become favourable to it because of large advertisement and publicity done for it. The result of this is that the demand for Coca-Cola has increased very much. In economics we would say that the demand curve For Coca Cola has shifted upward. On the contrary when any good goes out of fashion or people’s tastes and preferences no longer remain favourable to it the demand for it decreases. In economics we say that the demand curve for these goods will shift downward.
Incomes of the People: The demand for goods also depends upon incomes of the people. The greater the incomes of the people the greater will be their demand for goods. In drawing a demand schedule or a demand curve for a good we take incomes of the people as given and constant. When as a result of the rise in incomes of the people, the demand increases, the whole of the demand curve shifts upward and vice versa. The greater income means the greater purchasing power. Therefore, when incomes of the people increase, they can afford to buy more. It is because of this reason that the increase in income has a positive effect on the demand for a good. When the incomes of the people fall they would demand less of the goods and as a result the demand curve will shift below. For instance, during the planning period in India the incomes of the people have greatly increased owing to the large investment expenditure on the development schemes by the Government and the private sector. As a result of this increase in incomes, demand for food-grains has greatly increased which has resulted in rightward shift in the demand curve for them. Likewise, when because of drought in a year the agricultural production greatly falls, incomes of the farmers decline. As a result of the decline in incomes of the farmers, they demand less of cotton cloth and other manufactured products.
Changes in the Prices of the Related Goods: The demand for a good is also affected by the prices of other goods, especially those which are related to it as substitutes or complements. When we draw a demand schedule or a demand curve for a good we take the prices of the related goods as remaining constant. Therefore, when the prices of the related goods, substitutes or complements, change the whole demand curve would change its position; it will shift upward or downward as the case may be. When price of a substitute for a good falls, the demand for that good will decline and when the price of the substitute rises, the demand for that good will increase. For example, when price of the tea as well as the incomes of the people remains the same but price of the coffee falls, the consumers would demand less of tea than before. Tea and coffee are very close substitutes, therefore when coffee becomes cheaper, the consumers substitute coffee for tea and as a result the demand for tea declines. The goods which are complementary with each other, the change in the price of any of them would affect the demand of the other. For instance, if price of the milk falls, the demand for sugar would also be affected. When people would take more milk or would prepare more khoya, burfi, rasgullas with milk; the demand for sugar will also increase. Likewise, when price of cars falls, the demand for them will increase which in turn will increase the demand for petrol Cars and petrol are complementary with each other.
The Number of Consumers in the Market: We have already explained that the market demand for a good is obtained by adding up the individual demands of the present as well as prospective consumers or buyers of a good at various possible prices. The greater the number of consumers of a good, the greater the market demand for it. Now, the question arises on what factors the number of consumers of a good depends. If the consumers substitute one good for another, then the number of consumers of that good which has been substituted by the other will decline and for the good which has been used in its place, the number of consumers will increase. Besides, when the seller of a good succeeds in finding out new markets for his good and as a result the market for his good expands the number of consumers of that good will increase. Another Important cause for the increase in the number of consumers is the growth in population. For instance, in India the demand for many essential goods, especially food-grains, has increased because of the increase in the population of the country and the resultant increase in the number of consumers for them.
Changes in Propensity to Consume: People’s propensity to consume also affects the demand for them. The income of the people remaining constant, if their propensity to consume rises, then out of the given income they would spend a greater part of it with the result that the demand for goods will increase. On the other hand, if propensity to save of the people increases, that is, if propensity to consume declines, then the consumers would spend a smaller part of their income on goods with the result that the demand for goods will decrease. It is thus clear that with income remaining constant, change in propensity to consume of the people will bring about a change in the demand for goods.
Consumers’ Expectations with regard to Future Prices: Another factor which influences the demand for goods is consumers’ expectations with regard to future prices of the goods. If due to some reason, consumers expect that in the near future prices of the goods would rise, then in the present they would demand greater quantities of the goods so that in the future they should not have to pay higher prices. Similarly, when the consumers hope that in the future they will have good income, then in the present they will spend greater part of their incomes with the result that their present demand for goods will increase.
Income Distribution: Distribution of income in a society also affects the demand for goods. If distribution of income is more equal, then the propensity to consume of the society as a whole will be relatively high which means greater demand for goods. On the other hand, if distribution of income is more unequal, then propensity to consume of the society will be relatively less, for the propensity to consume of the rich people is less than that of the poor people. Consequently with more unequal distribution of income, the demand for consumer goods will be comparatively less. This is the effect of the income distribution on the propensity to consume and demand for goods. But the change in the distribution of income in the society would affect the demand for various goods differently. If progressive taxes are levied on the rich people and the money so collected is spent on providing employment to the poor people, the distribution of income would become more equal and with this there would be a transfer of purchasing power from the rich to the poor. As a result of this, the demand for those goods will increase which are generally purchased by the poor because the purchasing power of the poor people has increased and, on the other hand, the demand for those goods will decline which are usually consumed by the rich on whom progressive taxes have been levied.
FACTORS FOR CHANGE IN DEMAND