Theory of Demand

CLASS 11
MICRO ECONOMICS
 NOTES
THEORY OF DEMAND
In general terms, Demand means desire for a commodity. But in
economics the word demand deals with 5 valuable elements.
1.Desire for a commodity.
2.Ability to buy it.
3.Willingness to pay for it.
4.At the given price of a commodity.
5.In the given time period.
In economics, the term demand means the quantity of a commodity
that is demanded by a consumer according to their ability and
willingness to pay at the given price in the given time period.

Determinants/functions of demand
The factors that affect/change the demand of a commodity in the
market are known as determinants of demand.
Dx = f(Px, M, T, Pl ,t ,Pr)

Dx = Demand of good ‘x’ f = functional relationship

Px = price of good ‘x’ T = Taste and preference
M = Money income Pl = Population
t = Time Pr = Price of related goods

JOIN OUR TELEGRAM

JOIN OURCHANNEL
YOUTUBE( GAURAV JAIN OFFICIAL )
COMMUNITY

FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
1. Price of good ‘x’(Px);-
There is inverse/negative relationship b/w PX DX
price and quantity demand of a commodity
PX DX

2.Money income(M)

M DX

M DX

3.Taste and preference

PI DX

PI DX

4. Population

T DX

T DX

5.Time period
It is also an important determinant of
demand. If there exist favourable time
period for a commodity then its demand
would automatically increases.

JOIN OUR YOUTUBE COMMUNITY

CONNECT TO GAURAV SIR DIRECTLY ON WHATSAPP

7690041256
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
6. Price of related goods
I.Substitute goods II.Complementary goods

I.Substitute goods
It is a type of goods which can be used by P(t) (P(c)
altering (changing) other types of related
D(t) D(c)
goods. The want of a consumer can be satisfied
by altering or replacing its related goods.
Example tea and coffee

II.Complementary goods
When 2 or more goods are simultaneously
needed to satisfy the want of a consumer then Pr Pp
they are known as complementary goods. Dr Dp
Example Pen and refill or Milk and sugar

Law of Demand
With keeping other things constant, there is negative relationship
between price and quantity demanded. i.e.. if price of a commodity
increases then its demand will decreases and if price decreases
then demand increases (other things remaining constant).

Assumptions
I. Money income of a consumer must be constant.
II. Taste and preference should be same.
III. Population of the locality should remain unchanged.
IV. Price of related goods must be same

JOIN OUR TELEGRAM

JOIN OURCHANNEL
YOUTUBE( GAURAV JAIN OFFICIAL )
COMMUNITY

FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
Demand schedule

price Quantty demanded

5 80

10 90

15 30

20 10

Income and demand relationship

In order to determine the relationship between income and
demand of a commodity we must have to explain 2 types of goods
1.Normal goods 2.Inferior goods

1.Normal goods
They are such goods which have positive relationship between
income and quantity purchase. i.e. if income of a consumer
increases then demand of a goods also increases and vice versa..

M Dx
M Dx

JOIN OUR YOUTUBE

FOLLOW COMMUNITY
US ON INSTAGRAM
@gaurav_jainofficial
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
1.Inferior goods(low quality goods)
There is negative relationship between income and demand of
inferior goods. If income of a consumer increases then its quantity
purchase decreases as the consumer will now shifts to the superior
quality goods and vice versa.

M Dx
M Dx

Price of related goods and demand

The relationship between price of related goods and demand can
be presented with the help of 2 types of goods­: -
1.Substitute goods 2.Complementary goods

1.Substitute goods
They are the type of goods which can be used by replacing or
changing other types of its related goods.
Example:-Tea and coffee,
Closeup and pepsodent etc… Pt Pc
Dt Dc

JOIN OUR YOUTUBE COMMUNITY

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
This is also known as cross price effect or cross demand effect i.e

2.Complementary goods
They are those goods which are required simultaneously to
satisfy the want of a consumer.
Example:- Refill and pen etc.. Pr (Pp)
Dr Dp

JOIN OUR YOUTUBE COMMUNITY

CONNECT TO GAURAV SIR DIRECTLY ON WHATSAPP

7690041256
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
Question Why does the demand curve slopes downward from left to
right?
Answer Basically, law of demand is the main reason for downward
sloping of demand curve but besides that there exist many reasons
for downward sloping of demand curve which are as follows

1)New consumer When a company decreases price of a commodity

then just because of low price more and more consumer prefer to
enter in the market and hence the quantity demand increases.

2)Income effect

Px --RM --Dx
Px --RM --Dx

3)Law of diminishing marginal utility

The law states that when a consumer consumes a particular
commodity continuously then the utility derives from each
successive unit goes on diminishing.

4)Substitution effect
In case of substitute goods the price and quantity demand are
negatively related.

JOIN OUR TELEGRAM

JOIN OURCHANNEL
YOUTUBE( GAURAV JAIN OFFICIAL )
COMMUNITY

FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
Question:-What are the exceptions of law of demand?
Answer:- The exception of law of demand was firstly introduced
by “Sir Robert Giffen” and hence known as “Giffen Paradox” or
“Wrong solution”.

It represents about the positive

relationship between price and quantity
demanded. i.e. if price of a commodity
increases then its quantity purchase also
increases and if price decreases its
demand also declines. Therefore, in case of
exception of law of demand the demand
curve slopes upward from left to right as
shown in the diagram.

Causes of exception of law of demand

1)Ignorance
2)War and emergency
3)Necessities of life
4)Article of distinction(Prestigious goods):-

JOIN OUR YOUTUBE

FOLLOW COMMUNITY
US ON INSTAGRAM
@gaurav_jainofficial
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
1)Habituated goods
In case of habituated goods price and demand are not positively
related. Such as tobacco, cigarette, alcohol, internet connectivity

Change in demand and Change in quantity demanded

1.Due to change in other factor (Change in demand)
2.Due to change in price in own price(Change in quantity demanded)

Change in demand
When the demand of a commodity is affected due to change in
other things but not in own price of the commodity then it is termed
as change in demand. The change in demand can be negative or
positive
1.Increase in demand 2.Decrease in demand

S.No Increase in demand Decrease in demand

1. With remain same in price of With remain same in price of the

the good if there is favourable good if there is unfavourable
change in other things then the change in other things then the
demand of goods increases demand of goods decreases known
known as increase in demand. as decrease in demand.

2. ---OTá---Dxá ---OTâ---Dxâ

3. The demand curve shift parallel The demand curve shift parallel
towards right. towards left.

JOIN OUR YOUTUBE COMMUNITY

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
Increase in demand Decrease in demand

Change in quantity demand

When the demand of a commodity changes due to change in its
own price then it is known as change in quantity demand (OT
remains constant).
1.Contraction in Quantity Demand
2.Extension in Quantity Demand

Contraction in Quantity Demand Extension in Quantity Demand

JOIN OUR YOUTUBE COMMUNITY

CONNECT TO GAURAV SIR DIRECTLY ON WHATSAPP

7690041256
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND
S.No Contraction in quantity demand Extension in quantity demand

1 With remain same in other things With remain same in other

if price of a commodity increases
then its quantity demand goes on
diminishing which is known as
contraction of quantity demand.
things if price of a commodity
decreases then its quantity
demand goes on increasing
which is known as extension of
quantity demand.

2 (OT) ̅---Px---Q.Dx (OT) ̅---Px---Q.Dx

3 The demand will move up on the The demand will move

same demand curve. downward on the same
demand curve.

Individual demand It refers to the demand of a particular

commodity by an individual in the market.

Individual demand schedule

It is a list which represent about how much quantity demand is
demanded by an individual at various possible prices.

JOIN OUR YOUTUBE

FOLLOW COMMUNITY
US ON INSTAGRAM
@gaurav_jainofficial
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND

Price of Good ‘x’ Quantity demand of

Good ‘x’

5 50

10 30

15 20

20 10

Market Demand
It refers to the demand of a particular commodity by all the
individuals in the market.

Market demand schedule

It is a list which represents about how much quantity is
demanded by all the consumers (A+B) in the market at different
possible prices.

JOIN OUR YOUTUBE COMMUNITY

JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL )

ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NOTES
THEORY OF DEMAND

Price of Quantity Quantity demanded Market demand

Good ‘x’ demanded by ‘A” by ‘B’ (A+B)

5 50 130 180

10 30 120 150

15 20 110 130

20 10 100 110

Giffen goods They are those goods which have direct or positive
relationship between price and quantity demanded .i.e. if price of a
commodity increases then its demand also increases. vice versa.

JOIN OUR YOUTUBE COMMUNITY

CONNECT TO GAURAV SIR DIRECTLY ON WHATSAPP

7690041256
ECONOMICS ON YOUR TIPS COMMERCE CHAMPIONS ACCOUNTS ADDA

CLASS1111ACCOUNTS
CLASS ACCOUNTS
 NE SHOT
THE GAURAV JAIN

BEGINNER ADVANCED
THEORY OF DEMAND CLASS 11
WHATSAPP CHANNEL FOR NOTES AND IMPORTANT QUESTIONS

7690041256
YE LE BAALAK ... MAUJ KAR

THE GAURAV JAIN 7690041256