Demand refers to the quantity of a product or service that consumers are willing and able to purchase at various prices during a specific period. Several factors influence demand, but two of the most significant are price of the product and consumer income.
Price of the Product
The price of a product is perhaps the most fundamental factor affecting demand. According to the law of demand, there is an inverse relationship between price and quantity demanded, meaning that as the price of a product increases, the demand for it typically decreases, and vice versa. This occurs because consumers tend to purchase more of a product when it is cheaper, maximizing their utility, and reduce their consumption when the product becomes more expensive. For example, if the price of a smartphone drops, more consumers may decide to buy it, increasing the demand. Conversely, if the price rises, fewer consumers might be able to afford it, leading to a decrease in demand.
Consumer Income
Consumer income is another critical factor affecting demand. As consumers' income increases, their purchasing power also increases, allowing them to buy more goods and services. This relationship between income and demand can vary depending on the type of goods. For normal goods, demand increases as income rises, as consumers can afford to purchase more or better-quality products. For example, with a rise in income, a consumer may shift from buying a budget car to a luxury vehicle. However, for inferior goods, demand decreases as income increases, as consumers move towards higher-quality alternatives. For instance, a consumer may buy less instant noodles and more fresh produce as their income grows.
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