Some of the determinants of demand are the price of the product, the consumer's income, the price of complementary goods or services, the price of substitute products or the consumer's taste, among others.
In economics, demand refers to the amount of products and services that are purchased by consumers at a certain price in a certain period of time. Likewise, demand is the consumer's need or desire to purchase a certain product or service..
The previous concept shows that demand is the axis on which the economy turns, since the more quantity of products a consumer demands, the greater the production of said product..
Without the demand, no company would worry about producing, which would mean the unemployment of the economic system. The most effective way to understand how determinants affect demand is to assume that only one determinant varies at a time.
This principle is known as ceteris paribus, which means in Latin "all other things remain unchanged". Next, it is presented how each determinant affects individually (ceteris paribus) the demand.
The relationship between the price of a good or service and demand can be observed in the law of demand. This economic principle establishes that if the price of a product increases, fewer people will want to buy it, that is, the demand decreases.
The same is true in reverse: if the price of a product decreases, more consumers will want to buy it, increasing the demand for it..
However, since price is not the only element that affects demand, the law of demand will be applicable only if the other determinants do not vary..
If the consumer's income increases, he will be able to buy more products. However, if an individual's income is doubled, this does not mean that they will necessarily buy twice as many products..
The first product satisfies the need and the second ensures that the need has actually been satisfied; from here, marginal utility comes into play.
Marginal utility is defined as the degree of satisfaction or happiness that a good generates. The law of diminishing utility indicates that if an individual consumes additional units of a good, there will come a point where the good will not satisfy the consumer but will generate inconvenience.
For example, a glass of ice cream is delicious the first time it is consumed, a second glass of ice cream could also be satisfying, but ten glasses would be disgusting, they could even make the consumer sick.
On the other hand, if the consumer has really high incomes, he will be able to purchase higher priced products, also increasing the demand for expensive products.
Complementary assets are those that are required for the operation of another asset. For example, gasoline is a complementary good for cars. Another example of a complementary good is ink and paper for printers.
The increase in the prices of complementary goods generates an increase in the money that must be invested for the use of the demanded product.
For example, if the price of gasoline increases dramatically, the demand for cars will decrease..
A substitute product is one that can satisfy the need generated by another good demanded.
For example, margarine is a substitute for butter; If the price of margarine falls, the demand for the substitute will increase, while the demand for butter will decrease. If the price of the substitute increases, the opposite reaction will occur.
Another example of a good substitute is Samsung phones, which replace iPhones.
However, the Apple company continually innovates its products; Thus, if a new Samsung phone comes on the market that seeks to replace iPhones or iPods, Apple launches an improved product so that Samsung stops being a substitute.
When the preferences of a group of consumers are inclined towards a certain product, the demand for this product increases.
Companies try to attract the attention of consumers through advertising. For example, Coca-Cola has attracted the attention of consumers thanks to its creative and inspiring commercials, making this drink preferred over others available in the market..
When people expect the price of a good to increase, they tend to purchase more of this product as an investment (since in the future they will be able to resell it for a higher price than they paid for it), which increases demand.
For example, if house prices rise, people will want to buy them, as it will be a formidable investment..
The number of consumers affects aggregate demand. The more consumers enter the market, the greater the possibility that demand will increase.
There are other factors that affect demand, among which the quality of the product and the climate stand out..
The quality of a product increases the demand for it, regardless of its price, since if an expensive product of good quality will last longer than an inexpensive product of low quality.
The weather causes the demand for certain products to increase or decrease. For example, during the summer, the demand for holiday-related products (swimwear, floats) increases.
However, in winter, the demand for these products decreases, while the demand for coats, sweaters, scarves, among others, increases..
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