Market demand for a good is the sum total of demands of all the consumers in a market at a particular price. Factors determining market demand are: 1. Market Price of Good Other things remaining constant, as the market price of a good rises (or falls), the quantity demanded of the good falls (or rises). 2. Market Price of Other Goods Quantity demanded of a good also depends on the market price of other goods (i.e., related goods). The related goods can be classified into following two categories. (i) Substitute Goods In case of substitute goods, rise in the price of one good results in a rise in the demand of the other good and vice-versa. (ii) Complementary Goods In case of complementary goods, a rise in the price of one good results in a fall in demand of the other good and vice-versa. 3. Income of the consumer Change in the income of the consumer also affects the market demand for goods. The effect of change in income on the market demand depends on the type of the good. The market demand for normal goods shares a positive relationship with consumer?s income. The market demand for inferior goods (such as coarse cereals) shares a negative relationship with consumer?s income. The market demand for giffen goods also shares a negative relationship with the income. 4. Consumer?s tastes and preferences Other things being equal, if all the consumers prefer a commodity over other, then the market demand for that commodity increases and vice-versa. 5. Population size - Number of consumers in the market The market demand for a commodity is also affected by the population size. Other things being equal, an increase in the population size increases the market demand of a commodity and a decrease in population decreases the market demand of a commodity. 6. Distribution of Income If distribution of income in a society is fair and equal, then demand for a commodity is more compared to a situation with unequal distribution of income.
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