Factors Affecting Demand for a Commodity Explained for SHS 2 Economics (Sem. 1 – Week 3)
Why might consumers buy more of a product today even though its price has not changed? And why might they buy less?
The answer is that price is only one of the factors influencing demand.
Start With Price
The law of demand describes an inverse relationship between price and quantity demanded. Holding other things constant, a fall in price leads to an increase in quantity demanded, while a rise in price leads to a decrease.
This can happen partly because consumers may substitute a relatively expensive commodity with a cheaper alternative. A price increase can also reduce consumers’ purchasing power.
Suppose a product has the following demand schedule:
| Price (GH₵) | Quantity Demanded |
|---|---|
| 2 | 5 |
| 4 | 4 |
| 6 | 3 |
| 8 | 2 |
| 10 | 1 |
The pattern is clear: as price rises from GH₵2 to GH₵10, quantity demanded falls from 5 to 1.
Movement Is Not the Same as a Shift
This distinction is central to understanding demand.
A change in the commodity’s own price causes a change in quantity demanded. Graphically, we move from one point to another on the same demand curve.
A change in a non-price factor changes demand itself. The entire demand curve shifts.
Income Changes the Demand Picture
Income does not affect every type of good in the same way.
For a normal good, rising income increases demand.
For an inferior good, rising income decreases demand.
The relationship between income and demand therefore depends on the type of good being considered.
What Consumers Like Matters
Demand reflects consumer preferences and tastes. Trends, advertising and fashion can alter those preferences.
Consider a food product that receives favourable attention after a health study reports that it is beneficial. Demand may increase as consumers respond to the new information.
This is different from a price change: the product’s price does not need to change for demand to change.
Look at Related Goods
Consumers do not consider goods in isolation.
Substitutes satisfy similar needs. When the price of one substitute increases, consumers may switch towards another, raising its demand.
Complements are normally consumed together. A rise in the price of one complement can reduce demand for the other.
| Relationship | Typical demand effect |
|---|---|
| Substitutes | Price of one rises → demand for the other increases. |
| Complements | Price of one rises → demand for the other decreases. |
Expectations Can Move Today’s Demand
Consumers also make decisions based on what they expect to happen.
If people expect a future price increase, they may purchase more now. If they expect a future price reduction, they may postpone purchasing.
Therefore, expectations about tomorrow can influence demand today.
Population, Seasons and Policy
The number of consumers matters because an increase in the number of people participating in a market can increase demand.
Seasonality matters when particular commodities are demanded more strongly during particular periods. Warm clothing, for example, has greater demand in winter.
Government policy can also influence demand. Taxes, subsidies and regulations can alter purchasing decisions. A subsidy on electric cars, for example, can increase their demand.
Markets Are Dynamic
Demand can respond to trends, fads and technological developments.
A fad may temporarily increase demand. A technological advancement may make a product more desirable, increasing the quantity consumers want to purchase.
Increase or Decrease in Demand?
When a non-price factor causes consumers to want more of a commodity at every price level, there is an increase in demand. The demand curve shifts to the right.
When a non-price factor causes consumers to want less at every price level, there is a decrease in demand. The demand curve shifts to the left.
| Situation | Graphical result |
|---|---|
| Demand increases | Demand curve shifts right. |
| Demand decreases | Demand curve shifts left. |
A Practical Way to Analyse Demand
Whenever demand changes, work through these questions:
- Did the commodity’s own price change?
- If yes, identify the resulting change in quantity demanded.
- If no, identify which other demand factor changed.
- Decide whether that factor increases or decreases demand.
- Represent the result as either movement along the curve or a shift of the curve.
Test Yourself
Scenario 1: The price of a commodity falls.
Analysis: Quantity demanded increases, producing movement along the same demand curve.
Scenario 2: Consumers’ incomes rise and the commodity is a normal good.
Analysis: Demand increases, causing a rightward shift of the demand curve.
Scenario 3: Consumers expect the commodity’s price to fall in the future.
Analysis: They may delay purchases, reducing current demand.
Scenario 4: The price of a substitute rises.
Analysis: Consumers may switch to the commodity in question, increasing its demand.
Final Takeaway
Demand is influenced by several forces. Price determines movement along the demand curve, while factors such as income, preferences, related goods, expectations, number of consumers, seasonality, government policies and market dynamics can shift the entire curve.
The key analytical question is simple:
Is it the commodity’s own price that changed, or is another factor responsible?
That distinction tells us whether we are dealing with a change in quantity demanded or a change in demand.
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