What is Expectations?
Demand is nothing but a desire backed by ability to buy and willingness to part with your resources. A typical demand function shows the functional relationship between demand of a commodity and its various determinants.
D = f (Px, Pr, Y, T, E)
D = Quantity Demanded
Px = Price of the commodity
Pr = Price of related goods
Y = Income of the consumer
T = Tastes and preferences
E = Expectations
Demand even depends on what consumer’s expect out of future in the market. It is a very non-conceptual kind of determinant of demand where in the price play in the market owing to the forces of demand and supply itself decides the current demand for the product in the market. Expectations whether right or wrong is immaterial, what is material is the fact that it does affects current demand for the product in question. Here again the current price may not play a significant role in determining the demand for a product in the market except to the extent of comparisons when made with the expected future price of the same product.
When it comes to India, weddings are big affairs where in gold jewellery and other allied items play a very important role. Indian masses believe it to be an auspicious metal and give and take of gold adds to the beauty if Indian weddings. A bride is not a bride without a touch of gold. A product like gold whose prices are ever soaring but at times gives a customer relief of buying it at a surprisingly lower price depends more on what customer’s think of its future prices.
Suppose if today’s gold price is 22700 per 10 gms in India, and a consumer whose wedding is due in some months from now expects the prices to come down by say 2700 per 10 gms, will wait for that time of best buy for him. Else if he expects the future to show him worse rates of gold then he will buy it right away to prove his financial prudence.
Thus, we can see that expectations of the consumers decide a loat about a product’s demand in the market. To show it diagrammatically;
In the above diagram we can see that, DD is the demand curve showing current demand of gold in the market at a rate of 22700 per 10 gms. When the consumer expects this price to fall by say 2700 per 10 gms in the near future he will reduce his current demand and bring it to D’D’ from DD. On the other hand if he expects the near future prices to soar higher than current price, he will raise his current demand and this will shift the demand curve towards right.
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