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Determinants of Demand

Demand as a define by the economists depend on a number of factors like price, income, market environment, etc. These factors which determine or induce demand are referred as explanatory variables.

The most crucial determinant of demand for an item it is own price. Demand for x is determined by the price of x,[P_x] other factors being given (ceteris paribus). A household consumer, with given income and tastes, buys more at a lower price and less at a higher price. This reslition constitutes the core of low of Demand.


Given other factors, the demand for x may be influenced by the price of y[P_y] which happens to be the substitute for x. As y becomes relatively cheaper, more will be the demand for y and hence less will be the demand for x.


In the same way, the demand for x is affected by the price of its complementary item like z [P_z]. Here x and z are joint demanded. Thus, at lower price of z, more z (and x) may be demanded, ceteris paribus.


Income, particularly disposable income (after tax) is another crucial determinant of demand. Income is purchasing power of the buyer as it indicates the budget position [B] very often. Income constitutes the constraining factor. If income is flexible and variable, then at higher income, the buyers demand more and at lower income, the buyer demands less. This is true for all ‘normal goods’. Sometimes, this may not hold true for exceptional cases. Thus, after things remaining equal,