Definition of Demand:
Demand shows the willingness and ability of consumers to acquire the desired Goods and services.
Theory of Demand:
(At Ceteris Paribus) When the price of a commodity ( Goods or Services) increases its quantity demanded decreases, and when the price of a commodity decreases its quantity demanded increases.
Explanation:
It means that price and quantity demanded has an inversely proportional relationship.
In layman’s terms, when something that you want to buy is expensive you will buy a lesser quantity of it, but if it becomes cheap then you will buy more of that good to satisfy your want. This rule is derived solely by taking the price of goods and services into consideration.
Determinants of demand
There are many other factors that may affect consumer demand significantly. These are commonly known as Determinants of demand. A change in determinant causes a shift in the demand line/ curve. Following are some determinants of demand discussed in detail below:
Income of the Consumer
A major factor is the disposable income of the consumer. Disposable income is the income after deducting taxes. It greatly affects consumer demand as consumers can only spend as much as they have to spend.
Credit Facility
The credit facility is the availability of credit cards, overdrafts, and other options by banks for customers. These facilities enable consumers to buy more now and pay the bank later on specified credit terms.
Taxes and Subsidies
Taxes and subsidies majorly affect purchasing power as an increase or decrease in sales tax has a very adverse effect on buying habits of consumers as higher taxation increases prices and discourages shopping. Also, Higher income taxes reduce disposable income.
Trends and fashion
New styles, weather, fashion, and trends majorly affect consumer preferences. For Example in winter, you would prefer to buy jackets and hoodies as opposed to summer.
Interest rates
Higher interst rates compell consumers tp save more and spend less. This great affects the consumer demad to decrease in the economy.
