The following points highlight the ten major causes of change of demand for a commodity. The causes are: 1. Changes in Taste and Preferences Habit and Fashion 2. Changes in the Income of the People 3. Changes in the Prices of Related Goods 4. Changes in Population and Number of Potential Buyers, 5. Changes in the Pattern of Income Distribution, and few other Causes.
Cause # 1. Changes in Taste and Preferences, Habit and Fashion:
The demand for a commodity is determined by the individual taste and preferences habit and fashion. A change in any of these factors causes a change in the demand schedule for a commodity. Thus, in the past the people in our country had not much taste for tea or coffee; but now their taste for these articles has increased, resulting in the increase of demand for these. A person may grow tired of one type of recreation and try another type or he may prefer a new type of cooking fuel.
The birth of a baby may cause a family to spend less on recreation and more on food. Successful advertising campaigns may divert purchases from some products to others. Similarly, the demand for a commodity changes with the change in habits and fashions of the people as found in the demand for the articles like cigarettes, alcohol, fancy dresses radio sets, TV sets etc.
Cause # 2. Changes in the Income of the People:
A change in the income of the people causes both qualitative and quantitative changes in the demand for goods. The functional relationship between quantity demanded and income (i.e income-elasticity of demand) varies greatly among different commodities. An increase of money income of a poor person causes a rise in the demand for such articles as food-grains, clothes, sugar, soap, oil, fish, etc.; as a result their demand schedules change and the demand curve for each of these articles shifts to the right.
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Similarly, an increase of the money income of a middle class individual increases the demand for such articles as radio sets TV sets etc. On the other hand, a fall in the income of the people causes a fall in the demand for goods. As a result, the demand curves for these goods shift to the left. In general, high positive income-elasticity is found in so-called luxuries, and low income-elasticity is seen in those goods, the desire for which is quickly satisfied.
Cause # 3. Changes in the Prices of Related Goods:
The related goods refer to substitutes and complements. Any change in the prices of any of these goods brings about a change in the demand for other goods, depending on cross-elasticity. Thus, a fall in the price of tea reduces the demand for coffee; a rise in the price of petrol reduces the demand for cars and so forth.
Cause # 4. Changes in Population and Number of Potential Buyers:
The demand for a commodity depends also on the number and composition of the people in a country. An increase of population, as found in our country at present, increases the number of potential buyers and so the demand for most of the articles; and a decline in population causes a fall in the demand for most of the articles.
Moreover, the composition of the people in a country also determines the demand for goods. An increase in birth rate causes an increase in the demand for baby food, toys, baby powder etc. Similarly, in a country with more old men the demand for such goods as walking sticks, false teeth, wigs etc. will be large. Again, reductions in import control or similar barriers to trade allow more persons to enter a particular market.
Cause # 5. Changes in the Pattern of Income Distribution:
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A change in the pattern of income and wealth distribution also causes a change in the demand for goods. A reduction in the unequal distribution of income and wealth increases the demand for goods and services used by the people belonging to the low income groups (e.g., foodstuff, clothes, sugar, doctors services, transport services etc.); but it reduces the demand for goods and services used by the people belonging to the high-income groups (e.g., fashionable houses, cars, costly jewelleries, air travel, artistic furniture etc.).
Cause # 6. Changes in the Quantity of Money in Circulation:
An increase in the quantity of money in circulation usually increases the purchasing power of the people. As a result the demand for most of the goods increases. In such a situation, prices generally rise; but the increase in prices is not uniform. For this reason, the demand for some goods may increase or decrease relatively more than that for other goods. A decrease in the quantity of money in circulation similarly works in the opposite direction.
Cause # 7. Environmental Influences:
The demand for goods also changes with the change in the environment in which the people live. A change in the place of residence to a locality of fashionable persons creates the demand for the goods used by the residents of that locality.
Cause # 8. Innovation and Technical Progress:
Inventions and technical progress bring new articles in the market, with the result that old articles are no longer wanted. Thus, the invention of synthetic products has been reducing the demand for cotton or silk textiles, or the production of ball-point pens has been replacing pencils or fountain pens.
Cause # 9. Discovery of Cheap Substitutes:
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The discovery of cheap substitutes reduces the demand for expensive goods. Thus, the introduction of broiler chicken has considerably reduced the demand for country chicken.
Cause # 10. Other Factors:
The factors like expectations about future prices, government’s tax policy, advertisement etc. also cause changes in the demand for different goods and services. The prospect of better trading conditions in the near future increases the demand for goods including raw materials and implements by the producers and traders.
Again, heavy excise duties on commodities (e.g., petrol, luxury articles, tobacco, coffee, etc.) reduce their demand. Furthermore, attractive advertisements or import liberalisation also create new demand for both old and new goods.