FUNDAMENTALS of

ECONOMICS (MH106)

By:- Dr. Millo Yasung

Department of Management and Humanities
NITAP
 Demand
◈ Demand is different from need, desire and wants. Needs are the
basic necessities which are essential for survival like food,
shelter, water, and clothing. Wants are something we don’t need
actually, but it makes our life better. Desires are the extension of
wants, something you wish to have regardless of need and want.
Demand in economics refers to the desire to purchase the
commodity-backed by purchasing power and willingness to pay
for it.

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Demand is “The quantity of a commodity that consumer is
willing to buy at a particular price during a particular
period of time”.

Demand

Desire for Willingness Ability to At a given At a given

Commodity to Pay Pay Price Time

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Demand Function and Determinants of Demand
Dx = f(Px, Y, T, Pl, t, Pr)
Dx = Demand of commodity X
Px = Price of commodity X
Y = Money
T = Taste and Preference
Pl = Population
t = Time
Pr = Price of related goods
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Px = Price of commodity X
◈ This is the basic factor influencing the demand. There is a
close relationship between the quantity demanded and the
price of the product. Normally a larger quantity is
demanded at a lower price that at a higher price. There is
inverse relationship between the price and quantity
demanded. This is called the law of demand.

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Law Of Demand

The law of demand states that other related to each other. When the price
factors being constant (ceteris of a product increases, the demand
peribus), price and quantity demand for
of any good and service are inversely the same product will fall.

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Y = Money/Income

◈ The income of the consumer is another important variable

which influences demand. The ability to buy a commodity
depends upon the income of the consumer. When the
income of the consumers increases, they buy more and
when income falls they buy less. A rich consumer
demands more and more goods because his purchasing
power is high.

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T = Taste and Preference

◈ The demand for a product depends upon tastes and

preferences of the consumers. If the con­sumers develop
taste for a commodity they buy whatever may be the
price. A favourable change in consumer preference will
cause the demand to increase. Likewise an unfavourable
change in consumer preferences will cause the demand to
decrease.

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Pl = Population

◈ The growth of population is also another

important factor that affects the market demand.
With the increase in population, people naturally
demand more goods for their survival.

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t = Time

◈ Time whether favourable or unfavourable affect

the demand of a product to a greater extent. For
example, the demand of ice-creams and cold
drinks increases in summer, while tea and coffee
are preferred in winter. Some products have a
stronger demand in hilly areas than in plains.

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Pr = Price of related goods

◈ The related goods are generally substitutes and complementary

goods. The demand for a product is also influenced by the prices
of substitutes and complements.
◈ When a want can be satisfied by alternative similar goods they
are called substitutes, such as coffee and tea.
◈ Whenever the price of one good and the demand for another are
inversely related then the goods are said to be complementary,
such as car and petrol.

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