DEMAND

In this chapter you will learn about one of two tools of microeconomics that is demand, and
relationship between Price and Demand. this chapter will teach you about various concepts
of demand like demand function, individual demand, market demand, demand curve,
demand schedule. you might have heard of demand earlier to bath meaning of demand and
how it is different from needs and wants you will get to know that which needs needs and
wants to be said demand , you will study how a consumer shifts preferences from one good
to another when price or any other factor affecting that reference changes .

DEMAND

Demand refers to consumers Desire, willingness and ability to pay for a product at each
possible price during a given period of time. important points about demand–

-Willingness and ability to pay

-Particular quantity

-Particular price

-During a period of time

1.Individual demand– it refers to the quantity of commodity that an individual consumer is

willing and able to buy, at each possible price during a given period of time.

2.Market demand– it refers to that quantity of commodity that all consumers are willing
and able to buy, .during a given period of time.

DEMAND SCHEDULE

It is a tabular statement demanded by customer at different price levels during given period
of Time .

PAGE 1 THEEXTRACL ASS.COM

INDIVIDUAL DEMAND SCHEDULE.

PRICE QUANTITY
10 40
8 50
6 60
4 70
2 80

MARKET DEMAND SCHEDULE

DEMAND OF DEMAND OF
PRICE MARKET DEMAND
HOUSEHOLD A HOUSEHOLD B
1 20 10 20+10=30
2 17 9 17+9=26
3 14 5 14+5=19
4 10 3 10+3=13
5 8 1 8+1=9

DEMAND CURVE

Demand curve refers to graphical representation of demand schedule.

PAGE 2 THEEXTRACL ASS.COM

PAGE 3 THEEXTRACL ASS.COM
 DETERMINANT OF DEMAND ( Individual demand)

There are various factors influencing demand these are

1. Price of given community- it is the most important factor affecting demand. generally
there exist inverse relationship between price and demand. so, when price increases,
demand Falls and when price decreases, demand Rises. for example - if price of cars
increases, the demand of same will fall and if price of car decreases, the demand for the
same will rise.

2. Price of related goods- related product also affect demand of any commodity. related
goods are generally of two types:

1 substitute good– substitute goods are those goods which can be used in place of each
other to satisfy a particular want for example - Surf Excel and tide, Vivo and Oppo. screen
price of giving good and demand for substitute if price of Vivo phone Rises, consumer
would buy a phone as it is comparatively cheaper and hence its demand will increase.

2 complementary goods– these are the goods which are used together to satisfy a particular
want period for example height in toothpaste and toothbrush, popcorn and movie full stop
inverse relationship between price of given good and demand of other. that is if Price of car
rises people will buy less cars and if price of car Falls, the demand for petrol will increase as
people will buy more cars.

3 income of consumer– demand for a commodity is also affected by income of the consumer.
however this depends upon nature of commodities.

Normal Goods- if a given commodity is a normal good, then the demand and increase with
increase in income where as, the demand will fall with decrease in income.

Inferior Goods- if a given commodity is inferior good, then the demand will increase with
fall in income whereas the demand will decrease with rise in income.

4 Tastes and Prefrences- the demand of a commodity is also affected by change in fashion,
trend, habits etc. if a commodity is in fashion, the demand for it will increase where is
commodity become out of fashion the demand is fall.

5 expectation of change in price in future- price of certain commodity is expected to rise in

future, demand will increase it's going to be expensive in future whereas, if price of certain

PAGE 4 THEEXTRACL ASS.COM

commodity is expected to fall in future, the current demand will decrease as it's going to be
cheaper in future.

DETERMINANT OF DEMAND ( market demand)

1. size and composition of population– size of population affect demand of commodity. if

size of population increases, the demand for commodities Rises and its size of population
decreases, the demand for commodity Falls. so as the composition of population affect
the demand for example if population of children in a particular area is high, the demand
for good say, ice creams will increase otherwise it would fall.

2. season and weather - market demand is also affected by season and weather period for
example - during rainy season, demand for umbrella and raincoats increases whereas in
Winters the demand for the same will fall.

3. distribution of income - if the income in the economy is equally distributed, the demand
for a particular commodity is higher, whereas if income is not equally distributed, the
demand for particular commodity will fall.

in addition to the point, all the factors affecting individual demand are same but market
demand as well but the main points are just given above.

DEMAND FUNCTION

Demand function shows the relationship between quantity demanded for a particular
commodity and factors affecting it.

Individual Demand Function

Individual demand function refers to the personal relationship between income of

consumers etc.
It can be expressed as -

Dx= f(Px,Pr,Y,T,F)


PAGE 5 THEEXTRACL ASS.COM

Where, Dx= Demand for commodity.

Px=price of commodity.

Pr= price of related goods.

Y= income of consumer

T= taste and preferences.

F= future expectations.

Market Demand Function

Market demand function refers to the functional relationship between market demand and
factors affecting market demand.

It can be expressed as-

Dx=f(Px,Pr,Y,T,F,Po,S,D)

Where, Dx= market demand of a commodity

Px= price of commodity

Pr= price of related goods.

Y= income of consumers.

T= taste and preferences .

F= future expectations

Po= size and composition of population

S= Season and weather

D= distribution of income


PAGE 6 THEEXTRACL ASS.COM

 LAW OF DEMAND

Law of demand take the inverse relationship between price and quantity demanded
assuming other factors constant. (ceteris paribus)

Assumptions of law of demand

1.price of substitute goods remain constant.

2.price of complementary goods remains constant

3. income of consumers remain constant

4.there is no expectation of change in price in future

5.taste and preferences of consumer remains same.

DEMAND SCHEDULE

PRICE QUANTITY DEMANDED (units)

10 5
8 6
6 7
4 8
2 9

PAGE 7 THEEXTRACL ASS.COM

Demand curve slope downward from left to right as there exists an inverse relationship
between price and quantity demanded.

Reasons to Law of Demand

Now let us understand that why demand curve is downward sloping or by the exist an
inverse relationship between price and quantity demanded. the main reasons are:
1. law of diminishing marginal utility- law of diminishing marginal utility take that as we
consume more and more of a commodity, utility derived from each successive unit goes
on decreasing. so if consumer is getting more satisfaction, he will pay more and he will be
there if satisfaction is less therefore the satisfaction Falls when the price Rises and the
consumer will buy less of the commodity.

2. substitution effect- it refers to substituting one commodity with other when it becomes
relatively cheaper. so when price of a particular commodity Rises, the costumer finds its is
substitute comparatively cheaper and vice-versa. for example- if price of Cello pen Rises
from rupees 5 to 7, people will prefer buying linc pen as price of these Pens are still
rupees 5 therefore there would be a fall in demand of cello pen.

3. income effect- income effect refers to effect on demand of consumer when real income of
consumer changes due to change in price of commodity . when price of a commodity falls
price purchasing power of consumer Rises and he can buy more with same income and
hence demand Rises and vice-versa. for example price of ice cream of rupees 10 and
income of Tom was rupees 100 so he could buy 10 ice creams, but when price of ice
cream falls to be rupees 8, tom can now by 12 ice creams with the same income.

4. additional customers- when price of commodity Falls, the consumers who were not able
to buy the good before due to high prices, start buying due to reduced price and hence
demand will increase with fall in price of a commodity. for example– when Reliance jio
came in the prices of internet well, so the customers who were not able to purchase
internet pack in year started purchasing it and those who were already using it started
using more of it and hence demand of it increase.

5. different uses - there are some commodities which has several uses some of them are
more important while others are not. so when the price of the commodity increases we
limit its use to the most important one and hence demand Falls. for example– milk is not
only used for drinking, tea, coffee, curd, cheese, etc but when price of milk Rises we limit
the use of milk to direct consumption and hence demand for it falls.

PAGE 8 THEEXTRACL ASS.COM

Exception to Law of Demand

There are some exceptions where law of demand does not applying, these circumstances are
known as exceptions to law of demand:
1. giffen goods- giffen goods are special kinds of inferior goods whose demand increases
with rise in prices and demand decreases with fall in prices. it happens as consumer
thinks if prices are so low then it might be defective and hence the demand Falls even
when prices are falling and hence law of demand does not operate for giffen good.

2. status symbol goods or goods of ostentation- law of demand does not operate on status
symbol goods as these goods are used by rich people as their status symbol and their
demand will fall if prices are less. for example- if price of diamond Falls it can no longer
act as a status symbol and hence its demand will fall

3. fear of shortage- if a consumer expect a shortage of any particular commodity in near

future, the law of demand would operator example in case of drought or flood there is an
expectation that they would be a shortage of necessity goods like wheat, pulses so even if
price of the commodity are rising, the demand would not fall rather demand would
increase.

4. ignorance- when consumers are not aware of price of particular commodity, they buy the
good even if prices are high and hence law of demand does not operate.

5. fashion related good- law of demand does not operate on fashion related goods also. for
example - if latest fashion for girls is plazo they will buy it even if prices are high and Bell
bottom jeans or not in fashion then no one would buy them even if the prices are low.

6. necessity of life- another exception occurred in the case of such commodities which are
necessity of life. for example- the demand of salt, wheat, pulses would not fall even if
prices are Rising.

7. change in weather- with the change in season, the demand for certain goods Rises even if
price is rising and for certain goods demand will fall even if price fall.. for example- during
winters price of woolen clothes Rises but demand does not decrease whereas price of
cotton clothes fall but demand does not increase.

PAGE 9 THEEXTRACL ASS.COM

 CHANGE IN QUANTITY DEMANDED( Movement along the demand curve)

When demand of a commodity changes due to change in price, keeping other factors
constant it is known as change in quantity demanded. this change in demand can be of two
types:
1 Expansion in demand( download movement)
2 Contraction in demand( upward Movement)

Expansion of demand ( downward movement)

When demand for a commodity increases due to fall in price, keeping other factors constant,
it is known as expansion in demand or downward movement along same demand curve.



PAGE 10 THEEXTRACL ASS.COM

As clearly shown in above diagram that when price Falls from op to op the quantity
demanded become OQ( the demand increases from OQ to OQ1) and hence there is a
downward movement along the same demand curve DD.

Contraction in Demand ( upward movement)

When demand for a commodity Falls due to rise in prices, keeping other factors constant, it
is known as contraction in demand or upward movement along demand curve.

P A G E 11 THEEXTRACL ASS.COM
Diagram that when price of commodity Rises from OP to OP1, demand for commodity Falls
from OQ to OQ1 and hence there is an upward movement along same demand curve.

CHANGE IN DEMAND ( shift in demand curve)

When demand for any commodity changes due to any factors other than price of the same
commodity, it is known as change in demand or Shift in demand curve. shift can be of two
types:
1. Increase in demand ( rightward shift)
2. Decrease in demand( leftward shift)

Increase in Demand (Rightward shift)

When demand for any commodity Rises due to any factors other than price of the same
commodity, it is known as increase in demand or rightward Shift in demand curve.

PA G E 12 THEEXTRACL ASS.COM
As shown in figure, prices are constant at op , whereas quantity demanded Rises from OQ
to OQ1 and hence new equilibrium is established at E1 and demand curve dd shift
rightwards to D1D1.

Decrease in Demand (Leftward shift)

When demand of any commodity Falls due to change in any factors other than price, it is
known as decrease in demand or leftward Shift in demand curve.

As shown in figure prices are constant at OP, whereas quantity demanded Falls from OQ TO
OQ1 and hence new equilbrium is established at E1 and demand curve shift leftward from
DD toD1D1.

PAG E 13 THEEXTRACL ASS.COM

 MOVEMENT ALONG
BASIS SHIFT IN DEMAND CURVE
DEMAND CURVE
The quantity demanded When the quantity demanded
changes due to a change in changes due to change in any
price, keeping other factors factors other than own price of
Meaning constant , it lead to a the commodity, it leads to shift
movement along the same in demand curve.
demand curve.
The movement along the Shift in the demand curve is
demand curve is either upward either rightwards known as
Effect on demand curve known as contraction in increase in demand or
demand or downward known leftwards known as decrease
as expansion in demand. in demand.
It occurs due to change in own It occurs due to change in
price of commodity keeping other factors like change in
Reason other factors constant. price of related goods, change
in income etc. other than own
price of commodity.

CHANGE IN QUANTITY
BASIS CHANGE IN DEMAND
DEMANDED
When the quantity demanded When the quantity demanded
changes due to change in the changes due to any factors
Meaning price, keeping other factors other than own price of
constant, it is known as change commodity , it is known as
in quantity demanded. change in demand.
It leads to a movement along It leads to a. Shift in demand
the same demand curve, either curve , either rightwards
Effect on demand curve upwards contraction in known as increase ind demand
demand or downwards or leftwards known as
expansion in demand . decrease in demand .
It occurs due to increase or It occurs due to change in
decrease in price of given other factors like changes in
Reason commodity. price of substitutes , change in
piece of complementary
goods, change in income etc.

PAG E 14 THEEXTRACL ASS.COM

 BASIS EXPANSION IN DEMAND INCRAESE IN DEMAND
When the quantity demanded It refers to a rise in demand
rises due to a decrease in the due to any factor other than
Meaning price , keeping other factors own price of the commodity.
constant, it isknwon as
expansion.
There is a downward The damnd curve shifts
Effect on demand curve movement along the same rightwards.
demand curve.
It occurs due to a decrease in It occurs due to favourable
the price of the given change in the other factors like
Reason commodity. increase in price of substitutes,
decrease in price of
complimentary goods etc.
Price Demand (units) Price Demand (units)
TABULAR
21 10 120 100
REPRESENTAION 15 6 120. 150

CONTRACTION IN
BASIS DECREASE IN DEMAND
DEMAND
When the quantity demanded It refers to a fall in demand of
falls due to rise in price, a commodity due to any factor
Meaning keeping other factors constant, other than own price of the
it is known s contraction in commodity.
demand.
There is an upward movement There is a leftward shift in
Effect on demand curve alongtheu same demand demand curve.
curve.
It occurs due to increase in It occurs due to an
price of the given commodity. unfavourable change in the
other factors like decrease in
Reason price of substitutes , rise in
price of complementary goods
etc.
Price Demand (units) Price Demand (units)
TABULAR
20 10 20 10
REPRESENTAION 30 8 20. 8

PAG E 15 THEEXTRACL ASS.COM

 SUBSTITUE GOODS AND COMPLIMENTARY GOODS

SUBSTITUTE GOODS- substitute goods are those goods which can be used in place of one
another to satisfy a particular want.

For example- vivo phones and oppo phones.

When price of substitute goods increases, the demand for given commodity Rises and vice
versa.

INCREASE IN PRICE OF SUBSTITUE GOODS-

When price of substitute goods increases, the demand for given commodity Rises, as the
given commodity becomes relatively cheaper.

DECREASE IN PRICE OF SUBSTITUTE GOODS-

When price of substitute goods decreases, the demand for given commodity Falls, as the
given commodity becomes relatively expensive.

PAG E 16 THEEXTRACL ASS.COM

COMPLIMENTARY GOODS - complementary goods are those which are used together to
satisfy a particular want.

For example-Moblie phones and sim cards.

If price of complementary goods increases, the demand for given commodities Falls and vice
versa.
INCREASE IN PRICE OF COMPLIMENTARY GOODS-

When price of complementary goods Rises (mobile phones) the demand for given
commodity (sim card) falls.

PA G E 17 THEEXTRACL ASS.COM
DECREASE IN PRICE OF COMPPLIMENTARY GOODS

When price of complementary goods Falls (say inverter) , the demand for a given commodity
will rise (say battery).

NORMAL GOODS AND INFERIOR GOODS

NORMAL GOODS-
Refers to those goods whose demand increases with an increase in income, and demand
decreases with decrease in income.

PAG E 18 THEEXTRACL ASS.COM

INFERIORGOODS-

Inferior goods are those who demand increases with fall in income and demand decreases
with rise in income.

PAG E 19 THEEXTRACL ASS.COM

 KINDS OF DEMAND

1.Price demand- price demand refers to relationship between Price and Demand of
commodity keeping other factors constant

2.Income Demand- income demand refers to relationship between the income of

consumers and the demand for a commodity is assuming other factors constant.

3.Cross Demand- cross demand refers to relationship between price of related goods and
demand of given commodity keeping other factors constant.

4.Joint Demand- when two or more goods are demanded simultaneously to satisfy a
particular want it is known as joint demand.

5.Composite Demand- when a commodity have several uses its demand is known as
composite demand like electricity milk etc.

6.Derived Demand- demand for a commodity which depends on demand for Other goods is
known as derived demand.

7.Direct Demand- when a commodity satisfies the wants directly its demand is termed as
direct demand.

PAGE 20 THEEXTRACL ASS.COM

 8.Alternative Demand- when some particular want can be satisfied with different products
its demand is known as alternative demand.

9.Competitive Demand- when two goods are substitute of each other then their demand
is known as competitive demand.

PAG E 21 THEEXTRACL ASS.COM

PAGE 22 THEEXTRACL ASS.COM