Demand and supply

The determinants of demand 
The demand for a product can be considered from the standpoint of either individual demand or market demand. 
The determinants of individual demand are as follows: 
The price of the product. 
When deciding whether or not to buy a particular product, an individual will compare the price of the product with the amount of utility or satisfaction that he or she expects to receive from the product. If the price is considered worth the anticipated utility, the individual will buy the product and if not, he will not buy it. A decrease in the price of a product will probably increase an individual's demand for it since the amount of utility obtained is more likely to be worth the lower price.
 Conversely, a rise in the price of a product will probably result in a fall in demand, as the amount of utility received is less likely to be worth the higher price to be paid. An example of this phenomenon is the hotel industry in Kenya. There is usually an increase in domestic tourism during the low season when many Kenyans consider the lower hotel prices to be worth the level of satisfaction they are receiving. During the high season when the hotel prices are high, many Kenyans do not consider the satisfaction they receive to be worth the higher prices and hence they do not travel. 
If the amount that a consumer is willing and able to purchase changes due to a change in the price, a change in the "quantity demanded" is said to take place. 
If on the other hand the amount that a consumer is willing and able to purchase changes because of a change in any of the determinants of demand other than price then a change in "demand" is said to take place. 

The prices of related goods which may be either substitutes or complements. 
Two goods X and Y are said to be substitutes if a rise in the price of one commodity, say Y, leads to a rise in the demand of the other commodity X. This can be shown in Figure 3.1 
Substitutes are commodities that can be used in place of each other. 
Examples of substitute goods include: 
Butter and margarine
Beef and mutton 
A bus ride and a matatu ride 
A mango and an orange 
CDs and cassettes 

Demand for some commodities can also be affected by changes in the prices of complementary goods. 
Two goods A and B are said to be complementary if a rise in the price of one of the goods, say, A leads to a fall in the demand of another good, say, B. 
Complementary goods are usually jointly demanded in the sense that the use of one requires or is enhanced by the use of the other. 
Examples of complementary goods are: 
Cars and petrol
Hamburgers and chips 
Computers and software 
Tapes and tape recorders 
Bread and margarine

Demand is influenced by changes in disposable real income. 
An individual's level of income can be said to have an important effect on his or her level of demand for most products. 
If income increases the demand for most goods and services will increase especially the demand for better quality goods and services. 
A rise in income may, however, cause the demand for some goods to fall. 

Such commodities are referred to as inferior goods and comprise items like basic foodstuffs and cheaper clothing. 

Demand is influenced by changes in tastes and fashion. Personal tastes play an important role in governing a consumer's demand with certain consumers. for example, preferring to consume imported commodities despite their being much more expensive than local commodities. Tastes may also change according to the season of the year. Prevailing fashions are an important determinant of tastes. The demand for clothing is, for example, particularly susceptible to changes in fashion. 

The level of advertising is also an important determinant of demand. In highly competitive markets, a successful advertising campaign will increase the demand of a particular product while at the same time decreasing the demand for competing products. 

 The availability of credit to consumers. This factor especially affects the demand for durable consumer goods which are often purchased on credit. Changes in the terms on which credit can be obtained will have a marked effect on the demand for certain products like furniture and electrical appliances. For example, a decrease in the availability of credit or the introduction of more stringent credit terms is likely to lead to a reduction in the demand for some durable consumer goods.

Government policy. The government may influence the demand of a given commodity through legislation. 

For example, making it mandatory to wear seat belts, the consumer will then buy more seat belts as a result.