Deman

d
Dr. Simanchal Bag
Assistant Prof. in Economics
Silicon Institute of Technology
West, Sason, Sambalpur
 Definition of Demand
• In economics only the effective desires are called
demand.
• Effective desires refers three things
i. The desire for the commodity
ii. Willingness to buy
iii. The purchasing power to buy.
• In economics, demand is the quantity of a good that
consumers are willing and able to purchase at various
prices during a given time.
• According to Hanson “By demand, we mean the quantity
of a commodity that will be purchased at a particular
price and not merely the desire of a things.”
 Types of Demand
1. Price Demand: Price demand refers to the various
quantities of the commodity when the consumer will buy
per unit of time and at certain price. There is inverse
relationship between price and quantity demanded.
2. Income Demand: Income demand shows the relationship
between the income of the consumer and quantity
demanded.
3. Cross Demand: The change in quantity demanded of a
commodity without any change in its price but due to
change in the prices of related goods.
4. Direct Demand: The demand for consumer goods which
satisfy the human want directly is called direct demand.
5. Indirect Demand: The demand for producer goods which
satisfy the human want indirectly is called indirect demand.
 Continue…….
6. Joint Demand: If the demand for one commodity
leads to the demand for other is called joint demand.
For an example the demand for motor bike and petrol
are joint demand.
7. Composite Demand: Demand is said to be composite
when a thing is demanded for the more purpose. The
demand for electricity and coal is composite as they are
used for several purposes.
8. Competitive Demand: Demand for substitutes is
known as competitive demand i.e. the demand for one
commodity reduces the demand for other commodity.
For example the demand for vegetable oil and that of
butter oil are the competitive demand.
 Continue…….

9. Alternate Demand: when the demand is fulfilled in

alternate way is called alternate demand . Let us
consider the demand for light. It has an alternate
demand.
10. Derived Demand: The goods and services which
fulfil our wants indirectly are called derived demand.
Demand for producer goods are called derived
demand.
 The Law of Demand
• According to the law of demand other things being equal, if a
price of the commodity falls, the quantity demanded of it will
rise, and if price of the commodity rises, the quantity
demanded will fall.
• Thus, according to the law of demand there is inverse
relationship between price and quantity demand other things
remaining constant.
• The law of demand expresses the functional relationship
between price and quantity demanded.
• It can be expressed as:
Dx = f(Px, Py, Y, T)
Where, Px = price of x, Py= Price of y,
Y= Income of the consumer & T= Taste
 Assumptions Law of Demand
According to Stigler and Boulding, the law of demand is
based on following assumptions:
1. There should be no change in the income of the
consumer.
2. There should be no change in the taste and
preference of the consumer.
3. Price of related commodities should remain
unchanged.
4. The commodity in question should be normal.
5. There should not be change in the size of the
population.
6. There should be perfect competition in the market.
 Demand Schedule and Demand Curve

• The law of demand can be explained through a demand

schedule and a demand curve.
• Demand Schedule can be Individual demand schedule or
market demand schedule.
• Demand Schedule: Demand schedule is a list of the quantities
demanded at each different price when all other influences
on buying plan remain the same.
• Individual Demand Schedule refers to the quantities of
commodities demanded by the consumer at various price.
• Demand Curve: Demand curve is a graph of the relationship
between the quantity demanded of a good and its price when
all other influences on buying plans remain the same.
Demand Schedule and Demand Curve of An Individual Consumer

Demand Schedule and Demand Curve of An Individual Consumer

Price (Rs) Quantity Demanded (unit)

10 5
8 8
6 12
4 15
2 20

From the above table it is seen that as price per unit say (X) goes on
falling, the quantity demanded goes on increasing. When the price of
good (x) is 10 quantity demanded is 5 units. As such when price fall
to Rs.8 the quantity demanded increases to 8 units and so on.
 Continue……
• We can convert above demand schedule into a demand curve by
graphically plotting the various price-quantity combinations. And this
has been done in below figure.

• In above figure OX axis measures the different quantities of goods (x)

and OY axis measures price per unit of good x.
• By joining the various combination points we get a curve DD, which is
known as demand curve.
 Market Demand
• The market demand is the sum of total of demand of all
consumers in the market for a commodity at various prices.
• So, we can have market demand for a commodity by adding
up the quantities demanded of the commodity at various
prices.
• Suppose there are three consumers in the market A, B and C
of the commodity (x) whose demand schedule are given in
below table.

Note: QD= Quantity Demanded

 Continue……..
• By adding up the quantities demanded of the commodity by
three consumers at various prices we get the market demand
schedule.
• The market demand curve is the horizontal summation of all
individuals demand for the commodity. This can be shown in
the diagram given below.
 Continue……..

• The figure 2(A), 2(B), 2(C) shows the individual demand curve,
D1D1, D2D2, D3D3 are the demand curves for consumer A, B
and C and the market demand curve is DD.
• It is assumed that there are three consumers in the market
facing same price of the commodity but they purchase
according to their individual requirements.
• A+B+C = Market Demand
 Determinant of Demand
• The law of demand states other things remains constant more is
demanded at lower price and less is demanded at higher price.
• But when there is change in these other things, the whole
demand schedule or demand curve undergoes a change.
• The followings are the factors which determine demand for
goods:
1. Income of the consumer
2. Price of related commodities
3. Taste and preference of the consumer
4. Buyers in the market
5. Consumer expectation
6. Government Policy
7. Distribution of Wealth
 Continue………
1.Income of the Consumer:
• Income of the consumer is one of the important determinant
of demand . The demand for goods depends upon income of
the people.
• The greater the income of the people the greater will be their
demand for goods.
• Generally there is direct relationship between income of the
consumer and his demand.
• The demand for normal goods rises with an increase in income
and falls with a fall in income.
• But in case of an inferior good when the income increases the
demand for these goods becomes less and vice versa.
 Continue………
2. Price of Related Commodities:
• The demand for good is also affected by the price of other
goods, especially those which are related to it as substitutes or
compliments.
• When the prices of related goods such as substitutes and
complements change, the whole demand curve would change
its position. It will shift upward or downward as the case may
be.
• When the rise in prices of a good causes increase in demand
for another good the two goods are called substitute goods.
• The goods which are Complementary to each other, the
change in price of any of them would affected the demand of
other.
 Continue………
3. Taste and preference of the consumer
• Taste and preference of the consumer is one of the important determinant of demand.
• The price remaining constant if there is change in taste and preference of the consumer
there will be changes in demand.
• Taste and preference includes fashion, habits, customs, advertisement, climate and new
invention etc.
4. Buyers/Consumers in the market
• The increase or decrease in consumer also influence the demand of a product in
the market.
• The greater number of consumer of a good, the greater the market demand for
it.
• Another important factor which increase the consumers in the market is
population growth. Increase in population leads to an increase in demand for all
types of goods.
 Continue………
5. Consumer expectation
• Another factor which influences the demand for goods is
consumers expectation about the future.
• If a person expects a significant increase in his income next month
or next year he would be willing to spend more out of his current
income. This will cause a right ward shift of the demand curve.
• Besides, expectations about future price also affect the present
demand for goods.
• If due to some reason, consumers expect that in the near future
prices of goods would rise, then in the present they would
demand greater quantities of the goods so that in the future they
should not have to pay higher prices.
 Continue………
6. Government Policy
• Govt. policy is also responsible to influence the demand for the
commodity. The government imposes taxes on various
commodities which lead to an increase in the price of the
commodities. As a result the demand goes down.
7. Distribution of Wealth
• The amount demanded of a commodity is also influenced by
the distribution of wealth in the society.
• If there is an equal distribution of income in the society, the
demand will be higher and in case of inequality demand will be
less.