In economics, a demand describes the desire and willingness of the consumer to own a particular product in exchange for his or her money. When done in the collective market, demand pertains to the total quantity of product bought during a particular period and under different price points. Price is a determinant of demand. However, there are other factors that influence demand or in other words, the desire and willingness of a consumer and the public to pay a price for a particular product.
Below are the factors affecting demand:
1. Changes in Price: The law of demand states that assuming all else being equal, an increase in price results in a decrease in demand. In addition, a decrease in price results in an increase in demand. Note that when demand also affects the price. If demand goes up, price goes down and when demand goes down, price goes up. In other words, there is an inverse relationship between price and quantity demanded of a product.
2. Demand Shifters: Shifters of demand are non-price determinants of demand that cause a leftward or rightward shift in the demand curve. They affect the quantity demanded for a particular product even if the price remains the same. Examples of demand shifters are income of consumers, the tastes or preferences of the consumers, the price of complements or substitutes, the size of the market, and expectation about the future.
3. Economic Intervention: Governments can influence demand through policies and regulations. For example, prices of basic commodities such as food and energy are heavily regulated to promote the welfare of the consumers. This form of interventionism also stabilizes the demand for these basic commodities. In some instances, the government can directly lessen the demand by controlling the supply. Examples include the supply of basic commodities during natural calamities to prevent hoarding, import tariffs to promote domestic products, and threshold on hydrocarbon consumption to promote alternative energy sources.
4. Innovation and Trends: Advancements in technologies result in the introduction of better products, substitutes, and an improvement in manufacturing or service provision processes, among others. These examples of innovations disrupt the market. A market disruption can cause the price of an existing product to go down and redirect the attention of consumers toward a newer product. For example, manufacturing advances in China have driven the global demand for consumer electronics. In addition, the introduction of game-changing products such as the smartphones has lessened the demand for feature phones. Video streaming services have rendered video rental services obsolete.
5. Artificial Factors: There are other factors for artificially influencing demands. One example is planned obsolescence in which manufacturers design products with a limited useful lifespan to decrease demand in the future and increase demand for a new product. Pump and dump is another example in which price of owned stock are artificially inflated through false claims, thus selling the cheaply purchased stock at a higher price. This activity results in hype while affecting stock market prices. Artificial demand is another prime example in which consumer utility is increased inefficiently. Other examples are artificial scarcity and monopolies.
