What are the five factors that influence the demand?
An organization, while analyzing the effect of one specific determinant on demand, needs to make sure that all other determinants are to remain constant. This is since, if all the determinants can change or move simultaneously, then it would be too difficult to estimate the mass of change in demand in which may take place.
The five main factors which influence demand are:
- Income: A rise in income will lead to an increase in demand, this would mean that there would be a shift in demand curve to the right, however, a fall will lead to a decrease in demand for normal goods and would result in the curve moving to the left.
- Consumer Preferences: Favourable change leads to an increase in demand, unfavorable change lead to a decrease. This could be due to social or fashion changes in the market which leads to an increase or decrease in demand.
- Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease.
- Price of related goods: Both substitute goods which are those that can be used to replace each other and complement goods which are those that can be used together must be taken into consideration. As customers will not pay for a product in which they could have got cheaper somewhere else.
- Expectation of future: The future price: consumers’ current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices as customers may feel that if they buy more now they may be able to save in the future, however, if there are lower prices expected in the future they will hold off or buy less until the price has been decreased. Future income can also affect demand as consumers’ current demand will increase if they expect higher future income, however, their demand will decrease if they expect lower future income.