DEMAND

Done by: ROHINI PRADHAN

MEANING OF DEMAND
Demand for any commodity refers to the amount of that
commodity that will be purchased at a particular price during a
particular period of time.

INDIVIDUAL DEMAND vs. MARKET DEMAND

The demand for a commodity by a single consumer is known as
individual demand. An individual consumer is known as
household in Economics.
The sum total of demand by all households or individuals is
known as market demand. Thus, market demand refers to the
total quantity of a commodity that all the households are
prepared to buy at a given price during a specified period of
time.

DETERMINANTS OF DEMAND/ FACTORS DETERMINING

DEMAND
Price of the commodity.
Income of the consumer Normal goods.
Inferior goods.
Inexpensive necessities of life.
Consumers taste and preference.
Price of related goods.

 Substitute goods or competitive goods.

Complementary goods.
Consumers expectations
Consumer- credit facility.
Size and composition of the population.
Distribution of income.
Government policy.

LAW OF DEMAND
The law of demand shows the functional
relationship between price and quantity
demanded. Law of demand is one of the best
known and most important laws of economic
theory. The price and quantity demanded
moves in opposite direction.

STATEMENT OF THE LAW

The law of demand can be stated as:
Other things remaining constant, the quantity demanded of a
commodity increases when the price falls and decreases when
its price rises.
Thus, the law of demand indicates an inverse relationship
between the price and the quantity demanded of a commodity.

ASSUMPTIONS

The law of demand assumes that other things remaining

constant i.e., assumption of ceteris paribus order. Demand for
a commodity not only depends upon the price, but also on
many other factors, e.g., consumers income, price of the
related goods, consumers taste and preferences, etc. these
other factors influencing the demand are assumed to be
constant.
Thus the law of demand are based on the following
assumptions:
There should be no change in the income of the consumer.
There should be no change in the taste and preference of the
commodity.
Price of the related commodities should remain unchanged.
Size of population should not change.
The distribution of income should not change.
The commodity should be a normal commodity.

DEMAND SCHEDULE
A demand schedule is one of the way of showing the
relationship between the price of the commodity and the
quantity demanded. It is a table showing different quantities
of a commodity that would be demanded at different prices.
Demand schedule is of two types:
Individual demand schedule.
Market demand schedule.
Individual demand schedule is the table which shows various
quantities of a commodity that would be purchased at
different prices by a household.

Market demand schedule is a table which shows various

quantities of a commodity that all buyers (consumers) will
purchase at different prices during a given period.

WHY DOES THE DEMAND CURVE SLOPE DOWNWARDS TO

THE RIGHT?
Negatively sloping demand curve or inverse relationship
between price and quantity demanded can be explained in
terms of the following factors:
1. Law of diminishing marginal utility- The law of diminishing
marginal utility states that with increase in the units of a
commodity consumed, every additional unit of the
commodity gives a lesser satisfaction to the consumer.
2. Income effect- A change in demand on account of change
in real income resulting from change in the price of a
commodity is known as income effect.
3. Substitution effect- The substitution effect is the effect
that a change in relative prices of substitute goods has on
the quantity demanded.
4. Increase in the number of consumers- When the price of
the commodity falls, the number of consumers increases
and this tends to raise the demand for the commodity.
5. Several uses of the commodity.

EXCEPTIOMS TO THE LAW OF DEMAND

Law of demand is considered to be valid in most of the

situations. But in actual practice, law of demand may not
operate in many cases. Many a times, we observe that more
quantity of a commodity is demanded at a higher price, and
less of it is purchased at a lower price. In these situations, the
inverse relationship between price and the amount purchased
does not hold good. These are known as exceptions to the law
of demand. There may be several reasons for an upward
sloping demand curve:
Giffen goods
Articles of snob appeal
Exceptions regarding future prices
Emergencies
Quality- price relationship

CHANGE IN QUANTITY DEMANDED-MOVEMENT ALONG

THE DEMAND CURVE
When the amount demanded changes (rises or falls) as a
result of change in its own price, while other
determinants of demand (like income, tastes and prices of
related goods) remain constant, it is known as change in
quantity demanded. Change in quantity demanded are of
two types:
a) Extension in demand- When the quantity
demanded of the commodity rises due to fall in
its price, other things remaining constant, it is
called rise in quantity demanded or extension
in demand.

b) Contraction in demand- Contraction of demand

or fall in quantity demanded refers to a fall in
quantity demanded of a commodity as a result
in the rise in its price, other things remaining
constant.

CHANGE IN DEMAND- SHIFT IN DEMAND

CURVE
When the amount purchased of a commodity
rises or falls because of change in factors other
than price of the commodity, is called change in
demand. Change in demand are of two types:
a) Increase in demand- Increase in demand
refers to a situation when the consumer
buy a larger amount of the commodity at
the same price.
b) Decrease in demand- Decrease in demand
refers to a situation when the consumers
buy a smaller quantity of the commodity at
the same price

FACTORS WHICH CAUSE CHANGE IN

DEMAND
Increase in demand results from:
Increase in income.
Rise in the price of the
substitutes goods.
Fall in the price of the
complementary goods.
Favorable change in tastes and
preference.

 Exception in rise in price.

Increase in population.
Decrease in demand results from:
Decrease in income.
Fall in the price of the
substitutes goods.
Rise in the price of the
complementary goods.
Unfavorable change in tastes
and preference.
Exception in fall in price.

DISTINCTION BETWEEN
EXTENSION OF DEMAND
AND INCREASE IN DEMAND
Extension of demand
refers to a larger
quantity being
purchased due to the
fall in the price of the
commodity, while
increase in demand
refers to more being
purchased at the same
price.

 Extension of demand is
due to fall in its own
price of the commodity,
while increase in
demand is due to
change in other
factors affecting
demand.
Extension of demand
simply involves a
downward movement
along the same demand
curve, but increase in
demand results in
rightward movement of
the entire demand
curve.

DISTINCTION
BETWEEN
CONTRACTION OF
DEMAND AND
DECREASE IN DEMAND

 Contraction of
demand
means fall in
amount
purchased
due to rise in
the price of
the
commodity,
while
decrease in
demand
means smaller
amount being
purchased at
the same
price.
Contraction of
demand is due
to rise in own
price of the
commodity;
decrease in
demand is due
to change in
other factors
affecting
demand.

 Contraction of
demand
simply means
upward
movement
along the
demand
curve, but
decrease in
demand
results in the
leftward shift
in the entire
demand
curve.

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