Demand is a central concept in economics and the more specific subfield of macroeconomics. It signifies the desire and willingness of the consumer to own a particular product in exchange for his or her money. Furthermore, when applied to an entire market, demand pertains to the total quantity of products during a particular period and under different price points. Price is a basic determinant. However, in consideration of other influences, 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. These are called the factors affecting demand.
Below are the factors affecting demand:
1. Changes in Price
The law of demand states that assuming all else is equal, an increase in price results in a decrease in demand. Furthermore, based on the assumption, a decrease in price results in an increase in demand. It is also worth mentioning that the demand for a product also affects its price. Hence, if demand goes up, then the price goes down, and when demand goes down, the price goes up. There is a negative relationship or inverse relationship between the price of a particular product and the quantity demand for the same product.
2. Demand Shifters
Shifters are other factors affecting demand. These are also regarded as non-price determinants that cause either a leftward or rightward shift in the demand curve. They influence the quantity demanded for a particular product even if the price remains the same. Examples of these demand shifters are the income level or spending power of the consumers, the tastes or preferences of the consumers, the availability and prices of complements and substitutes, the size of the market, and the expectations about the future.
3. Economic Intervention
Governments can influence demand through regulations. Prices of basic commodities like food and energy are heavily regulated to promote the welfare of the consumers. This interventionism also stabilizes the demand for these basic commodities. The government can also directly lessen the demand by controlling the supply. Examples include the supply of basic commodities during calamities to prevent hoarding, import tariffs to promote domestic products, and special taxes to bar sales of certain products.
4. Innovation and Trends
Technology is another factor affecting demand. It results in better products, substitutes, and improvements in manufacturing or service delivery, among others. Innovation can also disrupt markets. This can result in a decrease in price and a redirection of the attention of consumers to newer products. Note that manufacturing advances in China have driven the global demand for consumer electronics. Smartphones lessened the appeal of feature phones, while video streaming services rendered video rentals obsolete.
5. Artificial Factors
There are other factors to artificially influence demands. A manufacturer can design a product with a limited useful lifespan to decrease its demand in the future and increase the demand for a newer product. This is called planned obsolescence. Pump-and-dump is another example in which the price of a stock is artificially inflated through false claims to create market hype and affect stock prices. Artificial demand involves increasing consumer utility inefficiently. Other examples include artificial scarcity and monopolies.