What does demand depend upon?

Answer 1

Before this question can be answered, one must first make the distinction between demand and quantity demanded. Quantity demanded is determined by price: if the price is high, people will not not demand very much of the good, but if the price is low, people will demand more of the good. Demand, on the other hand, is a shift in quantity demanded at all prices. A change in demand is determined by five factors.

The first factor is change in income: if income increases, then demand for a particular good, like cars, will go up. If income goes down, then not as many people will be able to afford to buy cars, so demand will go down.

The second factor is expectations: if people expect the price of a good to go up tomorrow, then people will demand more of the good today.

The third factor is the prices of related goods (substitutes and complements): if the price of Hot Dogs goes up, demand for Hamburgers (a substitute) might increase. If the price of hot dogs goes up, demand for hot dog buns (a complement) might decrease.

The fourth factor is number of buyers in the market: if you only have two buyers in the market for ice cream, for example, then demand would be low. However, if you add ten more buyers to the market, then demand would increase at every price because there would be more people demanding ice cream.

The fifth factor is probably the most obvious: tastes and preferences. If people don't like Pizza, then demand for pizza will be low.