The Factors that Determine Demand for Commodities

Below are Factors that Determine Demand for Commodities;

1. Price of the Commodity:

In a situation where there is an increase in the price of goods, the demand for it falls. The price of the commodity determines the quantity demanded. The higher the price, the lower the quantity demanded.

2. The Level of Consumers’ Income:

Consumers’ income determines the quantity demanded. The higher the income level, the higher the quantity of goods purchased and vice versa.

3. Tastes and Preferences of the Consumers:

The interest of consumers in a particular product results in an increase in demand for it. The taste of consumers changes with time, and this influences the level of demand. If a consumer’s taste changes in favour of a given commodity, definitely, more of such goods will be bought and vice versa.

4. Changes in Prices of Related Products:

The demand for a good is also affected by the prices of other related goods, especially those which are related to it as substitutes or complements.

When the 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. Examples of these types of goods are MacLean and Close up, Coke and Pepsi, etc.

For goods which are complementary to each other, the fall in the price of any of them would favourably affect the demand for the other.

For instance, if the price of garri falls, the demand for sugar would also be favourably affected. When people buy more garri, the demand for sugar will also increase. Likewise, when the price of cars falls, the quantity demanded of them will increase, which in turn will increase the demand for petrol, cars and petrol are complementary to each other.

5. Population Size:

The population size affects the demand for goods and services, the higher the population size, the higher the demand, especially for basic needs such as clothing and shelter, etc.

6. Climatic Factor:

The demand for hot tea, as well as umbrellas, increases during the rainy season but falls during the dry season. The demand for sweaters is higher during the harmattan period but falls during the hot season.

7. Income Distribution: 

The changes in the distribution of income can bring about changes in demand for goods and services. Equal distribution among individuals will lead to high demand for all goods and services, but if not it will affect the general price level of demand.   

8. Anticipation of Change in Price:

If the consumer expects that the price of a product will increase in the future, they tend to increase their present demand for such a product.

9. Government Policy:

Government policies like subsidiesA subsidy is a benefit given by the government to groups or individuals, usually in the form of a cash payment or tax reduction. If something like food or petrol is... More (reducing the cost of essential goods) affect demand for goods and services. Other government policies like taxation, money supply, and importation have a favourable and unfavourable effect on demand.

10. Uses of Modern Machines (Technological Development):

The invention of modern machines leads to an increase in the quantity and quality of products. As a result of inventions, new products replace the old ones.

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