There are a number of factors that influence the demand for a given good or service. They include:
- Consumer income. All other things being equal, demand for goods and services will rise when people have more money. This is true for everything except for inferior goods.
- Consumer tastes. It can be very hard to understand why people like some things and dislike others. Shifts in taste can radically change the demand for various products. This is, for example, why bell-bottomed pants are no longer in demand as they were 40 years ago.
- Price of competing goods. Let’s say you think that Coke and Pepsi are just about equally good. If the price of Pepsi goes down, you will drink more of that and the demand for Coke (the competing good) will drop.
- Price of complementary goods. Some goods are used together. For example, iPods and music files from iTunes are used together. If the price of iPods drops, people will buy more of them. They will need music to play on them and the demand for the complementary good (the music files) will rise.
- Consumer expectations. Let us take computers, for example. If you hear that Windows 8 will soon be installed on all new computers, you might hurry to buy a computer before the change takes place. You might expect that Windows 8 will not be very good and so you increase your demand for a computer running Windows 7.
These are the most important determinants of demand.