Factors affecting demand

Engineering Economics and Finance

1. FACTORS AFFECTING DEMAND

2. WHY DOES THE DEMAND CHANGE Even though the focus in economics is on the relationship between the price of a product and how much consumers are willing and able to buy, it is important to examine all of the factors that affect the demand for a good or service. Because these changes can be difficult to predict, short lived, or relative, Demand Schedules and Demand Curve Graphs cannot adequately address them as they show change in quantity demanded in relation to the single factor of price. Changes in these other aspects do not cause movement along a Demand Curve; they move the Demand Curve itself!Changes that increase overall demand shift the Demand Curve to the right as the quantity demanded increases at all prices. Changes that decrease overall demand shift the Demand Curve to the left as the quantity demanded decreases at all prices

3. FACTORS THAT CHANGE DEMAND Factors that directly affect Demand can include: Consumer Income Price of the Product Expectations The Price of Related Goods Population Change Tastes and Trend

4. CONSUMERS INCOME Increases in consumer income generally lead to an increase in the demand for goods, while decreases in consumer income have the opposite effect. Goods whose demand increases as income increases are referred to as Normal Goods. Goods whose demand decreases as income increases are referred to as Inferior Goods because they are replaced by higher quality goods. The term inferior just means that there is an inverse relationship between one's income and the demand for that good. Also, whether a good is normal or inferior may be different from person to person. A product may be a normal good for you, but an inferior good for another person.

5. Examples: DVD’s = Normal Houses = Normal Generic = Inferior

6. There is an inverse relationship between the price of a product and the amount of that product consumers are willing and able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as  The Law of Demand .   Price of the Product

7. EXPECTATIONS There is an inverse relationship between the price of a product and the amount of that product consumers are willing and able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand.

8. EXPECTATIONS Consumer expectations regarding price changes directly affect demand. If consumers feel prices for a good will drop soon, they will wait to purchase the good at a later date and a lower price. If prices are expected to rise, consumers will purchase the good now as opposed to waiting and risking paying more. Examples: Gasoline Non-Perishable Food Cars and Houses

9. As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we're talking about. when two goods are complements, there is an inverse relationship between the price of one good and the demand for the other good. On the other hand, some goods are considered to be substitutes for one another: you don't consume both of them together, but instead choose to consume one or the other. when two goods are substitutes, there is a positive relationship between the price of one good and the demand for the other good. The Price of Related Goods

10. As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers (in general) are willing and able to buy. As population increases, the demand for goods increases as well because each member of the population has needs to be filled. However, these needs change over time as segments of the population age and their wants and needs change Examples: Education Recreational Materials Housing POPULATION CHANGE

11. There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this may increase the demand for a product. On the other hand, if a new health study comes out saying something is bad for your health, this may decrease the demand for the product. This also affects the demand of a product. TASTES AND TRENDS

12. Consumers are notoriously fickle about the types and styles of goods that they consume. Goods that are extremely popular one year may have little or no demand on them the next. Predicting these trends, and adapting production to them, is extremely difficult. Examples: Beanie Babies Pokimon Cards Tie-Dye Clothe