Factors Affecting the Demand of Households.

a) The Tastes of the Households. Every family is different, and even members of the same family have different preferences. We may demand goods because they satisfy innate wants; or because they are fashionable; or because we have been convinced by advertising that they are desirable. The demand for all such goods will rise, and the demand for goods which are not to our taste or less well promoted will decline.

b) The Income of the Household. Family income is always decisive as to whether a commodity is demanded or not. Many families own a car, some own two cars, and many are resigned to the fact that they will never be in the car-buying income range.

c) The Necessity of the Commodity, and its Alternatives if Any. Some goods are demanded by everyone because they are necessities. Some goods become necessities because they are habit-forming, like tobacco and alcohol. Where a commodity has alternatives it is not a necessity, but the alternative must be in the same price range.

d) The Price of Other Goods. If the price of a commodity is high compared with the price of other goods the demand for it will be relatively weak. If the goods are close substitutes for one another (for instance, motor cycles and motor scooters), the price of one will be seriously affected by a lower price of its competitor.

Factors Affecting the Total Market Demand.

a) The Size and Structure of the Population.

If there are many people to be fed, clothed, and housed demand will tend to be strong, especially if the population is able to back its “wants” with purchasing power. The structure of the population will influence demand for particular items. A bulge in the birthrate for any reason will alter demand as the children born develop through to maturity. In the early years the demand for children’s clothes, toys, etc., will be increased. Gradually the increased demand will change to school books and games equipment, later to cosmetics and motor cars. Finally, an increased demand for wheelchairs and bearing aids may result.

b) The Distribution of Income among the Population.

Some societies are so organized that classes of rich and poor persons appear. Others are organized to achieve greater equality of wealth. A progressive system of taxation, which taxes the rich to help the poor, is often used to achieve greater equality. Market demand will be stronger in egalitarian societies than in those where obvious inequalities exist, for the mass of the people there can back their “wants” with purchasing power.

The Consumer’s Scale of Preferences.

The result of these conditions often called the determinants of demand, is a scale of preferences for each customer. High on each consumer’s scale of preferences come the things he needs most or likes best. Lower on the scale come things he will buy if income permits, once all the more satisfying items have been purchased. The scale changes with the pressure of daily events. We all know of things we have been meaning to buy for years, but somehow their purchase eludes us because more pressing requirements prevent them reaching the top of our scale of preferences. Every consumer subconsciously has a personal demand schedule for each class of goods, which reflects his individual attitudes and inclinations. This schedule takes for granted that the only thing that has changed to alter the demand is the price of the commodity. All other conditions of demand, like family income, or personal taste, or fashion, have not changed. The phrase “ceteris paribus” (“other things being equal”) is often used in economics to describe a situation where only one aspect of situation is deemed to be changed.

Supply. The responses that entrepreneurs make to the demands of consumers bring on to the market a wide variety of goods and services.

The total quantity of a good, or service, made available to the general public as a result of the business decisions of the entrepreneurs in the industry is called the supply of that good or service.