Levels of income
Population
End market indicators
Availability and price of substitute goods
Tastes and preferences
Economic analysis has recognized the role of key variables in determining demand and consumption. In practice, the distinction between demand (as a schedule of quantities as a function of price, other factors held constant) and consumption as an equilibrium quantity at a given price, is frequently ignored. The development of "gap" type models illustrate the common approach of projecting 'demand' as a fixed quantity independent of price.
Demand, as the relationship between price and quantity, is subject to change over time due to changes in the underlying factors held constant by the static notion of demand. Changes in demand "shifters" are often included in economic estimation of demand representing anticipated dynamics in these determinants.
A key determinant of demand is the level of income evident in the appropriate country or region under analysis. As a generality, the higher the level of aggregate and/or personal income the higher the demand for a typical commodity, including forest products. More of a good or service will be chosen at a given price where income is higher. Thus determinants of demand normally utilize some form of income measure, including Gross Domestic Product (GDP).
Population is of course a key determinant of demand. Although all forest products do not necessarily enter final consumer markets, the actual markets are largely presumed to be functionally related to population. Growing populations are positively correlated to timber demands in the aggregate, as well as specifically to individual forest products. Frequently, population and income estimators are combined, as in the case of the use of Gross Domestic Product per capita.
The use of end market indicators as determinants of demand is frequently incorporated into demand analysis. For example, much of the final use of forest products is linked to construction (residential and total). Indicators and trends related to construction activities, or which are determinants of construction, provide indirect estimates of the influence of these activities as the source of derived demand for wood. Housing starts, public investments, interest rates, etc. can be highly correlated to timber demand.
Consumption choices related to timber are also influenced by the alternative options facing users in the relevant marketplace. The availability of potential substitute products, and their prices, weigh heavily in determining the elasticity of demand, both in the short run (static) sense and over time (long run). Fuelwood, as a dominant use of timber in the Asia Pacific Region, reflects conditions of very limited options for energy sources at 'reasonable' prices. Rural low income or subsistence populations simply do not have 'options' regarding energy - they use wood or go without. Demand, at this basic level, in almost perfectly inelastic. The cost (if only implicit in terms of gathering time) does not materially affect consumption quantity.
Suitability of alternative goods and services is, in part, a question of knowledge as well as availability. Market information regarding alternative products, quality, convenience, and dependability all influence choices. Under conditions of increased scarcity and rising prices for tropical hardwood panels, for example, users have a positive incentive to search for and investigate the suitability of alternatives that were previously overlooked or ignored.
All markets are shaped by collective and individual tastes and preferences. These patterns are partly shaped by culture and partly implanted by information and knowledge of products and services (including the influence of advertising). Different societies use forest products differently because of these differences in taste and preferences. For example, markets for wood products in Japan are commonly recognized as requiring very high product quality standards, the importance of visual attributes of wood, and other preferences not commonly found in many other markets.
FAQs
The key determinants of consumption include income, savings, expectations, changes in fiscal policy, debt levels, and the availability of goods and services.
What are the determinants of consumer demand? ›
Determinants of demand are factors that either positively or negatively affect demand in the market. The five determinants of demand are consumer taste, the number of buyers in the market, consumer income, the price of related goods, and consumer expectations.
What are the 5 determinants of demand? ›
5 Determinants of Demand
- Buyers' Income. The budget or income of consumers matters tremendously. ...
- The Price of Related Goods and Services. ...
- Tastes and Preferences of Consumers. ...
- Consumer Expectations of When Prices Will Rise or Fall. ...
- Demographics and Market Size.
The five main determinants of consumption spending are disposable income, interest rates, wealth and assets, consumer confidence, and expectations of future income. Among these, disposable income is considered the most important. A rise in stock prices or housing prices can positively impact consumption spending.
What are the 7 determinants of consumption? ›
The main factors influencing consumption in Macroeconomics are income levels, interest rates, consumer confidence, future expectations, household debt levels and wealth, demographic factors and government policy.
What is the most important determinant of consumption? ›
A consumer's consumption spending and savings depend on the income he/she has. This is because a consumer spends in the economy to meet its present requirements and save to meet its future requirements. So, the most important component of consumption and saving is the income level.
What is consumption demand? ›
Consumption demand represents the demand for goods and services by individuals and households in the economy. This is the major category in the national income accounts for most countries, typically comprising from 50 percent to 70 percent of the gross national product (GNP) for most countries.
What two major factors determine consumer demand? ›
Answer and Explanation:
- Two factors affecting the consumers' demand for products are.
- Consumers' Income: The income or earnings of the consumers is directly related to the demand for products. ...
- Price of related goods: Related goods are the substitutes or complements of the product considered.
Economic factors that affect the demand for consumer goods include employment, wages, prices/inflation, interest rates, and consumer confidence. When employment, wages, and consumer confidence are high, the demand for consumer goods increases. If they are low, the opposite is true.
What are the four elements that determine the demand? ›
Essential elements of demand are quantity, ability, willingness, prices, and period of time. Own price is the most important determinant of demand. When the own price of a commodity falls, its demand rises and when its own price rises, its demand falls.
How to find market demand
- Identify target users. Identifying and understanding your target users is the very first step in determining market demand for the product. ...
- Analyze the market. ...
- Monitor industry trends. ...
- Launch small and test. ...
- Find interest using social media.
Consumption and the business cycle
In national income accounting, private consumption expenditure is divided into three broad categories: expenditures for services, for durable goods, and for nondurable goods.
What is an example of consumption in economics? ›
Consumption can be defined in different ways, but it is best described as the final purchase of goods and services by individuals. The purchase of a new pair of shoes, a hamburger at the fast food restaurant or services, like getting your house cleaned, are all examples of consumption.
How does consumption affect the economy? ›
Keynesian theory states that if consuming goods and services does not increase the demand for such goods and services, it leads to a fall in production. A decrease in production means businesses will lay off workers, resulting in unemployment. Consumption thus helps determine the income and output in an economy.
What is a determinant of demand quizlet? ›
Determinants of demand include tastes and preferences, incomes, number of buyers, expectations, and prices of related goods and services.
