COMPETENT COMMERCE

CLASSES
By:-Rohit Maheshwari

CLASS-XI
SESSION-2023-24

ECONOMICS
By-Anubhav Awasthi

TOPIC- 4
THEORY
OF
DEMAND

Student Name :-________________________

School:-______________________________
-Meaning :- Demand refers to the quantity of a commodity that a consumer is
willing and able to buy , at each possible price during a given period of time .
-Types of Demand :- There are two types of demand –
a)Individual Demand :- It refers to the quantity of a commodity that a
consumer is willing and able to buy at each possible prices during a given
period of time.
b)Market Demand :- It refers to the quantity of a commodity that all
consumers are willing and able to buy at each possible prices during a given
period of time.
-Determinants of Individual Demand :-
1- Price of the Given Commodity (Px) – It is the most important factor
affecting demand for the given commodity . Generally , there exist an inverse
relationship between price and quantity demanded . It means, as price increases ,
quantity demand falls and vice -versa .
2- Price of Related Goods (Pr) :- Demand for the given commodity is also
affected by change in price of the related goods . Related goods are of two types:-
(i) Substitute Goods:-These are those goods which can be used in place
of one another for satisfaction of a particular want, like tea & coffee .
An increase in the price of substitute leads to an increase in the
demand for given commodity and vice – versa .
(ii) Complementary Goods:- These are those goods which are used
together to satisfy a particular want , like tea & sugar .
An increase in the price of complementary good leads to a decrease in
the demand for given commodity and vice – versa .
3- Income level of Consumer (Y) :- Demand for a commodity is also affected
by income of the consumer . However , the effect of change in income on
demand depends on the nature of the commodity :-
a)If the given commodity is a normal good , then an increase in income leads to
rise in its demand , while a decrease in income reduces the demand .
b)If the given commodity is an inferior good , then an increase in income
reduces the demand , while a decrease in income leads to rise in demand .
4- Taste & Preference of the consumer (T) :- Taste and preferences of the
consumer directly influence the demand for a commodity. If the consumer is in
favour of the given commodity then it will leads to rise in its demand and vice -
versa .
5- Future expectation of change in price (F):- If the price of a certain
commodity is expected to rise in near future then demand for such a commodity
will increase in current period and Vice- versa.
 -Determinants of Market Demand :-
Market demand is influenced by all the factors affecting individual demand for a
commodity . In addition , it is also affected by following factors :-
1-Size and composition of population (Po) :- Increase in the level of population
raise the market demand , while decrease in population in the country reduces the
market demand .
Composition of population , i.e., ratio of males , females , children and number
of old people in the population also affects the demand for a commodity .
2-Season & Weather(S) :- If the season & weather conditions are in the favour
of the given commodity then it leads to increase in its demand . Whereas , if it is
against to the commodity then it will reduces its demand .
3-Distribution of income(D) :- If income in the country is equitably distributed ,
then market demand for the commodity will be more and in case of unequal
distribution of income it will be less .

INDIVIDUAL DEMAND
-Individual demand Function :- It refers to the functional relationship between
individual demand and the factors affecting individual demand .
It is expressed as : DX = f (PX , Pr , Y , T , F)
-Individual demand Schedule and curve :-
ID Schedule :- It refers to a tabular statement showing various quantities of a
commodity that a consumer is willing to buy at various levels of price , during a
given period of time .
PRICE QUANTITY DEMANDED
5 1
4 2
3 3
2 4
1 5
ID Curve :- It refers to a graphical representation of individual demand
schedule .

Price

Quantity
As seen in the diagram , price is taken of Y axis and quantity demanded is taken
of X axis .By putting the points as per ID schedule in the graph we will find a
downward sloping demand curve which shows there exist an inverse relationship
between price & quantity demanded of a commodity .
MARKET DEMAND
-Market demand Function :- It refers to the functional relationship between
market demand and the factors affecting market demand .
It is expressed as : DX = f (PX , Pr , Y , T , F , PO , S , D)
-Market demand Schedule and curve :-
MD Schedule :- It refers to a tabular statement showing various quantities of a
commodity that all consumers are willing to buy at various levels of price ,
during a given period of time .
PRICE Demand Demand Market Demand
by A by B (A + B)
5 1 2 3
4 2 3 5
3 3 4 7
2 4 5 9
1 5 6 11
MD Curve :- It refers to a graphical representation of market demand schedule.
Space for Graph :-

As seen in the diagram , price is taken of Y axis and quantity demanded is taken
of X axis .By putting the points as per MD schedule in the graph we will find DA
& DB are the individual demand Curves. Market Demand curve is obtained by
horizontal summation of the individual demand curves . All the curves are
downward sloping demand curve which shows there exist an inverse relationship
between price & quantity demanded of a commodity .
NOTE:- Market demand curve is flatter than the individual demand curve
because price have a big impact on market demand in comparison to
individual demand. So Market demand curve is flatter and Individual
Demand curve is stepper.

-Law of Demand :- It states the inverse relationship between price and quantity
demanded keeping other factors constant (ceteris paribus) .
Note:- This law is propounded by Alfred Marshall .
-Assumptions of Law of demand :-
1- Price of substitute goods do not change.
2- Price of complementary goods remain constant.
3- Income of the consumer remain same.
4- There is no expectation of change in price in future .
5- Taste & Preference of the consumer remains same.

-Exceptions to Law of Demand :-

1-Giffen Goods : These are special kind of inferior goods on which the
consumer spends a large part of his income and their demand rises with an
increase in price and demand falls with decrease in price .
For ex:- In our country , it is often seen that when price of jowar and bajra falls,
the consumers have a tendency to spend less on them and shift over to superior
cereals like wheat & rice .This phenomenon , popularly known as Giffen’s
Paradox was first observed by Sir Robert Giffen .
2-Veblen Goods or Status Symbol Goods or Goods of social distinction : The
exception relates to certain prestige goods which are used as status symbols. For
ex, Diamonds ,gold , antiques etc, are bought due to the prestige they confer .The
higher the price , the higher will be the demand for such goods .
3- Fear of shortage : If the consumer is having the fear of shortage of a
commodity in near future then he/she will buy more and more of that good even
at higher price .
4- Ignorance : Consumer may buy more of a commodity at a higher price when
they are ignorant of the prevailing prices of the commodity in the market .
5-Necessities of life : If the commodity we are consuming is our necessity than
we will buy it more even at high prices .
6- Fashion related goods : Goods related to fashion do not follow the law of
demand their demand rises even at high prices .
-Movements Along the demand Curve(Change in quantity demanded) :-

When quantity demanded of a commodity changes due to a change in its price ,

keeping other factors constant , it is known as change in quantity demanded . It is
graphically expressed as a movement along the same demand curve .

CHANGE IN QUANTITY DEMANDED

Occurs due to

CHANGE IN PRICE
Leads to

MOVEMENT ALONG THE DEMAND CURVE

Either Or

DOWNWARD MOVEMENT UpWARD MOVEMENT

Known as Known as
Expansion/Extension in Demand Contraction in Demand
( due to decrease in price ) ( due to increase in price )

-Expansion in demand ;- It refers to a rise in the quantity demanded due to a

fall in the price of the commodity ,other factors remaining constant .
- It leads to downward movement along the same demand curve .
- It is also known as ‘Extension in Demand’ or ‘ Increase in quantity demanded’
-Contraction in Demand :- It refers to a fall in quantity demanded due to a rise
in the price of the commodity , other factors remaining constant .
- It leads to upward movement along the same demand curve.
- It is also known as Decrease in quantity demanded .
In the above diagram , Expansion in demand can be seen when Point “A1”
Moves to Point “A2” which occurs due to fall in price from “P1” to “P2” leads to
increase in quantity demanded from “Q1” to “Q2”.
Whereas , Contraction in demand can be seen when Point “A1” Moves to Point
“A3” which occurs due to rise in price from “P1” to “P3” leads to decrease in
quantity demanded from “Q1” to “Q3”.

-Shifts in demand Curve(Change in demand) :-

When demand of a commodity changes due to a change in any factor other than
the own price of the commodity , it is known as change in demand . It is
expressed as a shift in the demand curve ..

CHANGE IN DEMAND

Occurs due to

CHANGE IN FACTORS OTHER THAN PRICE

Leads to

SHIFTS IN DEMAND CURVE

Either Or
 RIGHTWARD SHIFT
Known as
Increase in Demand
(due to favourable change in
other factors at the same Price)
LEFTWARD SHIFT
Known as
Decrease in Demand
(due to Unfavourable change in
other factors at the same Price)

-Increase in demand ;- It refers to a rise in the demand of a commodity caused

due to any factor other than the own price of the commodity . In this case,
demand rises at the same price .
- Increase in demand leads to Rightward shift in Demand Curve.
-Decrease in demand ;- It refers to a fall in the demand of a commodity caused
due to any factor other than the own price of the commodity . In this case,
demand falls at the same price .
- Decrease in demand leads to Leftward shift in Demand Curve.

In the above diagram , Increase in demand can be seen when Demand curve “D”
shifts to the right and form a new demand curve “D1”. Due to which quantity
increases from “Q” to “Q1”.
Whereas , decrease in demand can be seen when Demand curve “D” shifts to the
left and form a new demand curve “D2”. Due to which quantity decreases from
“Q” to “Q2”.

THANK YOU
Space for Additional Notes :-
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