Factors affecting the Demand Curve - MIT School of Distance Education

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MIT School of Distance Education

• Factors affecting the Demand Curve

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• A graphical illustration which shows the
  effectual relationship between the price of a
  commodity and its quantity is known as a demand
  curve. Every manager refers to a demand curve as
  it is significant in making business decisions.

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• There are various factors from the external
  environment which affects a demand curve. The
  factors lead to shifting of the curve either to
  the left or right side.
• The demand curve is mainly affected by the five
  factors- income of the consumer, prices of
  related goods, taste preferences and population.

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Income of the consumer

• It is one of the vital determinants of demand.
  As the consumers income increases, they demand
  more of superior goods rather than inferior goods.

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• Inferior goods are those that witness a decrease
  in their demand as the income of consumers
  increase. It is known to have a converse
  relationship with demand. For instance, people of
  lower income group who cannot afford to purchase
  a vehicle or pay taxi fare prefer traveling
  through public transport. But, as their income
  would increase, theyd prefer personal vehicle.

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• Normal or superior goods are those goods whose
  demand increases with an increase in the income
  of consumers. It has a direct relationship with
  the demand.  For instance, as the income of the
  consumer increases, they can afford to buy a car
  and travel by it.

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Prices of related goods

• Related goods are divided into two categories
• Substitute Goods
• These are the goods which can be used in the
  place of one another. Under substitute goods, a
  decline in the price of one good leads to the
  decrease in the demand of other. One of the
  well-known combinations of a substitute good is
  tea and coffee. The decrease in the price of tea
  will lead to a decrease in the demand for coffee.
  So, people will start shifting towards tea and
  consume less coffee.

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• Complementary Goods
• The goods which are consumed together are called
  complementary goods. Under this category, an
  increase in the price of one good will lead to a
  decrease in the demand of other good. For
  instance, an increase in the price of petrol will
  lead to a decrease in the demand for petrol cars.

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Size of the population

• Size of the population affects the demand to the
  maximum. As the population increases, the demand
  for a certain product will also increase. If the
  birth rate is increasing in a country, the demand
  for baby products will automatically boost. On
  the other hand, if the death rate is increasing
  in the country, the demand for hospitals or
  medical services will increase.

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Taste and preferences

• The demand for a product is mainly dependent upon
  the taste and preference of the consumers. As a
  new product becomes a trend in the industry,
  people start preferring it and its demand rises
  but as its fashion leaves, its demand decreases.

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• So, these are the factors affect the demand
  curve. Every manager must observe these factors
  so that he/she can identify the demands for a
  particular product. If you are looking to shape
  your career in the field of management, then
  pursue management courses from MIT School of
  Distance Education right away.  These courses are
  better than distance MBA as their syllabi are
  updated regularly to sync with the ongoing
  industrial landscape.

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