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Demand Factors : How Effect On Cryptocurrencies || Explaining by Classical Economics

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Demand for a product depends upon a number of factors or determinants. According to the classical theories of economics, the most important factors of demand are: Price of the good, Income of consumer, Tastes, Fashion & Prices of related goods.

As I like to explain the behaviors of cryptocurrencies by the classical economics theories, today I will discuss about how these factors influences the cryptocurrencies.


We can put the impact of a number of factors or determinants on demand in the functional form by the following equation:


1. Price of the good (Px):

Classical Theories: We know that when price rises, consumers buy less & when prices fall, demand increases. Here, we assume other things (factors) to be remaining constant, i.e, ceteris paribus. The reservation price is the maximum price an individual buyer is willing to pay for one unit of the product. Reservation prices differ for each buyer.

Effects On Cryptocurrencies: In cases of cryptocurrencies, the supply is related with its generation or mining. So demand is determined by the users activities ration than the market price. But when you want to trade cryptocurrencies, than it may have some influences. Experiences explain that demand is not effected by prices here rather than prices are being effected by demand.


2. Income of consumer (I):

Classical Theories: The effect of income of the consumer differs for Normal Goods & Inferior Goods.

  • Normal goods: More income means greater purchasing power. With higher incomes, the consumer is able & usually willing to purchase larger amounts of the goods & vice versa.
  • Inferior goods: Demand for inferior goods, however, is different. When the consumer’s income rises, he no longer buys these goods, turning to more expensive goods of better quality instead. Increasing income leads to decreasing demand for inferior goods. Examples of inferior goods are cheap food or cheap clothing of poor quality.

Effects On Cryptocurrencies: In case of cryptocurrencies, Income has limited control over the demand. As it is not like the consuming goods, it is generally used as an investment tool. So people deploy ideal money or the surplus units in this market.


3. Prices of related goods (Py):

Classical Theories: Related goods are of 02 types— substitute & complementary.

  • Substitute goods: Substitute goods can be interchangeably used. When price of a substitute good rises, the demand for that good rises & vice versa. For example, tea and coffee are substitute goods. If the price of Tea is raised sharply, it may be substituted by Coffee as both can satisfy nearly the same wants.
  • Complementary goods: Complementary goods are demanded together as car & petrol or mobile phone & SIM card. When the goods are consumed together, the demand for one influences the demand for the other. An increased demand for Mobile phone may lead to increased demand for SIM card or flexi-load.

Effects On Cryptocurrencies: Bitcoin, other cryptocurrencies, USD and other cross-rates influences the price and demand of cryptocurrencies. Historically the fluctuations of bitcoin positively impact on the cryptocurrencies. There is a correlation among them. As it is not today’s topics, so I will not explain it right now. Hope I will write another blog about this isuue.


4. Taste or utility of the good (T):

Classical Theories: The taste or utility of a product is its ability to satisfy some needs of the consumer. It may depend on the quality of a product, its design, size, color etc. If tastes & utility are favorable, the demand for a good will be large.

Effects On Cryptocurrencies: In case of cryptocurrencies, the taste may be termed as the utility that highly influences the cryptocurrencies. If the utility of the cryptocurrencies can be enhanced and the barriers can be removed, the exchange of cryptocurrencies will sharply increase.


5. Fashion or consumer’s preferences (F):

Classical Theories: It express the consumer’s relationship towards the product, his opinion or value judgement about the utility of the product. Even if the product has useful properties, the consumer may not be aware of it or may simply dislike it. Advertising is aimed at changing fashion & consumer preferences.

Effects On Cryptocurrencies: Not only the cryptocurrencies, but also other items of forex market and capital market tends to be motivated by public concerns. In those countries, people are well informed and conscious about the trend of future economy, the demand of cryptocurrencies is higher on that territories.


6. Other factors:

  • Number of buyers (the size of the market): The total market demand depends on the number of buyers. With more consumers demand is usually higher & vice versa. But in cryptocurrencies, number of user is more important that the number of buyer. The changes on the number of buyer may contribute on the increase of price, but can have a little control the demand supply.
  • The consumer’s expectations about the future: Consumer expectation about the future prices, stability, strength, potentiality and other features also influences demand.


About Me:

I am Tariqul Islam Like Blog, Vlog, Writing, Photography & Art Hive: @tariqul.bibm Dtube: My Channel 3speak: My Vlog Twitter: Tariqul Islam Pinmapple: My Travel

I am an Engineer by Graduation,
Teacher by occupation & Writer by passion.

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