Determinants of Market Demand

The following article has been adapted from FME Articles, a partner organization of Finance OneforOne. To read a longer version of this article, click here.

Before we start: changes in prices do not change market demand. Changes in demand (caused by either of the 6 determinants below) can either cause consumers to buy more of a product at the same price or buy less of a product at the same price.

1. Consumer Incomes

If people’s wages increase, they will be willing to spend more, causing demand to increase. Similarly, if people’s wages decrease, they will want to save more and spend less, causing demand to decrease. ​

2. Consumer Attitudes/Trends

Consumer attitudes and trends considerably influence the demand for particular products. While reading this section, think about whether these scenarios apply to you are not.

Here are the major consumer attitudes that impact market demand: Family Many people will make buying decisions based on their families’ preferences and opinions.

Religion Religion contributes to consumer attitudes because many people make decisions regarding their purchases of specific products based on their religion. For example, if a religion disallows the consumption of meat, the demand for meat will decline.

Seasons When people consider buying a product, they often examine whether it will be beneficial for them in the short term. For example, during Christmas time, people want to decorate their houses; therefore, the demand for lights, Christmas trees, inflatable yard decorations, and ornaments increases.

Research If a study or research reveals information about something that changes people’s mindset about it, the demand for it will adjust. A study/research will be exceptionally impactful if an influential source, such as the government, reveals the information.

3. Complementary Goods

Complementary goods are products that associate with each other. For example, gas and cars are complementary goods because you need gas to power cars. Since complementary goods are related to each other, the relationship between their demands is direct. This means that if the demand for one good is rising, the demand for the complementary good is also rising, and vice versa. ​

4. Substitute Goods

Although quite obvious, substitute goods are goods that can take the place of other goods. Unlike complementary goods, the relationship between substitute goods’ demands is inverse. An inverse relationship signifies that if the demand for one good goes up, the demand for the substitute good goes down, and vice versa. ​​

5. Population Changes

If the size of the population alters, the demand curve will change in the same way. If the size of the population increases, demand will increase, but if the population decreases, demand will also decrease.

6. Consumer Expectations

If people believe that the price of a certain product will increase soon, then its demand will increase. The demand increases instead of decreasing because people want to purchase as much of the product as possible before the price rises. The duration of the new demand curve varies depending on the situation.