Determinants of Demand

Determinants of Demand Suggested Variables to

Use in Regression Analysis

Price Price is a most important variable that affects the demand of any product so here price is the main variable. Price can be measured by finding out the cost of the producing the product plus the profit margin.

Tastes and preferences Taste and preferences also has an impact on the demand of any product but it is mainly taken into consideration when there are people with diverse taste and preferences staying in the market where the product is being sold. Taste and preference can be measured by finding out the percentage of people situated in the market that don’t like particular taste of preferences.

Price of related products Price of related product is important factor but it cannot be taken as factor in the regression analysis to determine demand because the price of the related product would directly affect the price of the product and the price of the product is already taken in consideration. Using price of the related product as factor would lead to multicollinearity. Price of related product can be found out form the market.

Income Income is considered as a factor in deciding the demand of a product but it is not the case with essential goods.

Cost or availability of credit Cost of availability of credit play as a factor if the product demanded is luxury product.

Number of buyers Number of buyers is the demand for the product and it cannot be taken as factor.

Future expectations Future expectation plays an important role and it can be taken as factor to determine the demand of product.

Other possible factors Other possible factors could be war, rite or any natural disaster can affect the demand of the product.