Demand theory is a theory relating to the relationship between consumer demand for goods and

services and their prices. Demand theory forms the basis for the demand curve, which relates
consumer desire to the amount of goods available.

Factors Determining Demand

1)Size and regional distribution of population: A rise in population leads to an increase in the
number of consumers. As a result demand, increases. The greater the number of consumers, the
greater the market demand for a commodity. Therefore, demand for a commodity is directly related to
the size of the population. Regional distribution of a population also affects the demand.
2)Composition of population: If there are more children, demand for Coca Cola will increase.
Similarly, if there are more old people, the demand will decrease.
3)Weather and climatic conditions: Changes in weather conditions also influence demand for a
product. For example, a sudden rainfall on a hot summer day brings down the demand for cold drinks.
4)Taxation: Higher taxes imposed on a commodity will lower the demand for that commodity, and
vice versa.
5)Advertisement effects: Preferences of customers can be affected by advertisement and publicity,
leading to greater demand for a product.
Bringing in Salman Khan has good effect on sales of Coke as he is followed in large numbers.
6) Income: A rise in a persons income will lead to an increase in demand, a fall will lead to a decrease
in demand for normal goods. If people have good incomes in society then they can spend more on
luxury items like Coke.
7)Consumer Preferences: Favorable change leads to an increase in demand, unfavorable change
lead to a decrease.
8)Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to
decrease.
9) Price of related goods:
a.
Substitute goods -Price of substitute and demand for the other good are directly related. Example: If
the price of Fruit Juices rises, the demand for soft drinks ( Coca Cola ) should increase.
b.
Complement goods -Price of complement and demand for the other good are inversely related.
Example: if the price of pizza reduces, the demand for Coca Cola will increase as people regularly
consume Coke with Pizza.
10) Expectation of future:
a.
Future price: consumers current demand will increase if they expect higher future prices; their
demand will decrease if they expect lower future prices. Say , if there is news that rates for Coca Cola
will increase then people will make stock of the drinks.
b.
Future income: consumers current demand will increase if they expect higher future income; their
demand will decrease if they expect lower future income.