What Determines Consumer Demand in the Market?

You learnt about the law of demand which states that quantity demanded has a defined relationship with the price of a product. However, for this relation to hold true we had assumed that all other factors remain constant. So what are these other factors? and what happens if they change? Let's find out.

You learnt that demand is affected by several factors, called the determinants of demand. These determinants are:

• Price
• Price of related goods
• Expectations for the future
• Income 
• Tastes and preferences

You also saw how the demand curve will change if there is a change in any of these determinants. This change is called a shift in the demand curve.

Now you will learn about the exceptions to the law of demand. So, let's get started.

You learnt about the two exceptions to the law of demand, namely:

• Giffen goods - Those goods whose quantity demanded increases with an increase in price and decreases with a decrease in price are called Giffen goods. You saw the example of train tickets in which out of the 26 days you were occasionally travelling in the first-class costing ₹70 say on 4 days and in the cheap second class costing ₹10 on the remaining 22 days. Then, in a month, your expense would be (₹70x4)+(₹10x22) = ₹500 and this is the amount you are willing to spend on your commute in a month. Now, if the price of the second-class increases to ₹20 then you would have to give up your occasional luxury of travelling in first-class as your second class journey alone would exceed your previous budget (₹20x26) = ₹520. Making second-class travel a Giffen good as when the price went up, you started travelling in second-class on all 26 days as against the earlier 22 days.
• Veblen goods - These are goods that serve as a status symbol and, hence, the higher their price is, the greater is the demand for them. You can refer to this link to understand Veblen goods in greater detail.