Demand Analysis

Demand: - The demand for commodity is essentially consumers attitude and

reaction towards that commodity. The consumers attitude gives rise to
actions in purchasing units of commodity at various prices. Precisely stated,
the demand for a commodity is the amount of it that a consumer will
purchase or will be taken of from market at various given prices in a period
of time. Demand in economics implies both desire to purchase and ability to
pay for goods. In economics, unless demand is backed by purchasing power
or ability to pay it do not constitute demand. Demand for a good is
determined by several factors,
- the test and desire of the consumer for a commodity
- the income of the consumer
- price of related goods, substitute and complements
When there is change in any of these factors, demand of the consumers for a good
changes. Individual consumers demand and market demand for a good may be
distinguished.
The Law Of Demand:The law of demand expresses the functional relationship
between price and quantity demanded. According to law of demand, other things being
equal, if price of a commodity falls, the quantity demanded of it will rise and if price
of a commodity rises, its demand falls. According to the law of demand, relationship
between price and demand is inverse, where the other factors like income of the
consumer, price of related goods, market fluctuations, etc. remain constant.
DEMAND SCHEDULE AND DEMAND CURVE
The law of demand can be illustrated through a demand schedule and demand curve.

In table, it is seen that when price of a commodity is Rs. 12

per unit, consumer purchases 10 units and when price falls, quantity demanded by
consumer is rising, this schedule of demand can be also presented in diagram that on x
axis price and on y axis quantity is shown, DD is demand curve, this diagram explains
that when price of a commodity rise its demand is declining and vice versa. Further, it
is seen that both in demand schedule and demand curve that as price of a commodity
falls, more quantity of it is purchased. Since there is more demand at lower price and
less demand at higher price, the demand curve slopes downwards towards right. Thus,
the downward sloping demand curve is in accordance with the law of demand which
as stated above describe inverse relationship between price and demand.
Why Does Demand Curve Slope Downward?
When the price of a commodity falls, the consumers can buy
more quantity of the commodity with his given income. If he chooses to buy the same
amount of commodity as before, some money will be leftover with him because he has
to spend less on the commodity due to its lower price. As a result of fall in price of the
commodity, consumers real income or purchasing power increases. This increase in
the real income induces the consumer to buy more of that commodity. This is called
income effect of the change in price of commodity. This is one of the reason why

consumer buy more of commodity whose price falls. Other reason that why the
commodity demanded for a commodity rise at its price fall is substitution effect. This
includes the consumers to substitute the commodity whose price has fallen. Thus,
according to price level and demanded level of commodity, the demand curve slopes
downwards.
Exceptions to Law of Demand:
1) Goods having prestige value or precious goods.
Some consumers measures the utility of a commodity
entirely by price. Diamonds are considered as prestige goods that at lower price,
people purchase less and at higher price people purchase more.
2) Giffen goods.
Determinants of demand:
1) Price of Commodity:
Price of the commodity is the most important determinant or factor
affecting demand of the commodity. If the price of a good increases, demand of that
commodity declines.
2) Income of the consumer:
Demand of goods alsodepends upon the incomes of the people. The greater
the income of the people, the greater will be the demand of goods. The greater income
means the greater purchasing power. Therefore when incomes of people increases,
they can afford more, that increase in income has a positive effect on demand for
goods and vice versa.
3) Change in price of the related goods.
The demand for goods is also affected by the price of other goods,
especially those which are related to it as substitutes or complements. When the price
of related goods changes, the whole demand curve would change from its position, it
will shift upwards. For eg., Tea and coffee are very close substitutes. Therefore when
coffee becomes cheaper, the consumer substitutes coffee for tea and as a result the

demand for tea declines. The goods which are complementary with each other, the
change in the price of any of them would affect the demand of other. The pen and ink
are complementary goods.
4) The number of consumers in market or Population:
Population of the economy also is main factor that affect the
demand of commodities. The greater number of consumer makes higher demand of
commodity. Catagories of consumers are one of the important factors and market level
is also necessary. Type of market also affect to the various level of demand. If higher
market ratio is more in economy for demand of luxurious goods, there will be lower
market of basic products.
5) Changes in propensity to consume.
The income of the people remaining constant, if their
propensity to consume rises then out of the given income they would spend a greater
part of it with the result that the demand for goods will increase and vice versa.
6) Taste and preferences of the consumer:
A good for which consumers taste and preferences are
greater, its demand would be large and demand curve will lie at a higher level.
Peoples taste and preference for various goods often change and as a result there is a
change in demand for them. The changes in demand for various goods occur due to
changes in fashion and also due to the pressure of advertisements by manufacturers
and sellers of different products.
7) Consumers expectations with regards to future price:
Another factor which influences the demand for goods is
consumers expectations with regard to future prices of the goods. Consumers expect
that in the near future that in the near future, the prices of the goods would rise, then in
the present they would demand greater quantities of the goods and when the consumer
hope that in future they will have good income income then in present they will spend
greater part of their incomes with the result that their present demand for good will
increase.

8) Income distribution
If the distribution of income is more equal, then the propensity to
consume of the society as a whole will be relatively high which means greater demand
for goods. On the other hand, if the distribution