What does the word demand means

In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time.^[1] The relationship between price and quantity demand is also called the demand curve. Demand for a specific item is a function of an item’s perceived necessity, price, perceived quality, convenience, available alternatives, purchasers’ disposable income and tastes, and many other options.

Factors influencing demand[edit]

Innumerable factors and circumstances affect a consumer’s willingness or to buy a good. Some of the common factors are:

The price of the commodity: The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally, the relationship is negative, meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. For example, if the price of a gallon of milk were to rise from $5 to a price of $15, that would be a big price increase. Such a significant price increase causes the consumer to demand less of that product at the price of $15 because not only is it more expensive, but the new price is very unreasonable for a gallon of milk.

Price of related goods: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up, the quantity demanded of the other good goes down.

Mathematically, the variable representing the price of the complementary good would have a negative coefficient in the demand function. For example, Q_d = a — P — P_g where Q is the quantity of automobiles demanded, P is the price of automobiles and P_g is the price of gasoline. The other main category of related goods are substitutes. Substitutes are goods that can be used in place of the primary good. The mathematical relationship between the price of the substitute and the demand for the good in question is positive. If the price of the substitute goes down the demand for the good in question goes down.

Personal Disposable Income: In most cases, the more disposable income (income after tax and receipt of benefits) a person has, the more likely that person is to buy.

Tastes or preferences: The greater the desire to own a good the more likely one is to buy the good. There is a basic distinction between desire and demand. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one’s desires into effect. It is assumed that tastes and preferences are relatively constant.

Consumer expectations about future prices, income and availability: If a consumer believes that the price of the good will be higher in the future, he/she is more likely to purchase the good now. If the consumer expects that his/her income will be higher in the future, the consumer may buy the good now. Availability (supply side) as well as predicted or expected availability also affects both price and demand.

Population: If the population grows this means that demand will also increase.

This list is not exhaustive. All facts and circumstances that a buyer finds relevant to his willingness or ability to buy goods can affect demand. For example, a person caught in an unexpected storm is more likely to buy an umbrella than if the weather were bright and sunny.

The number of consumers in a market: The market demand for a good is obtained by adding individual demands of the present, as well as prospective consumers of a good at various possible prices. The larger the consumer-base is for a good, the greater the market demand for it.

Demand function equation and curve[edit]

The demand equation is the mathematical expression of the relationship between the quantity of a good demanded and those factors that affect the willingness and ability of a consumer to buy the good. For example, Q_d = f(P; P_rg, Y) is a demand equation where Q_d is the quantity of a good demanded, P is the price of the good, P_rg is the price of a related good, and Y is income; the function on the right side of the equation is called the demand function. The semi-colon in the list of arguments in the demand function means that the variables to the right are being held constant as one plots the demand curve in (quantity, price) space. A simple example of a demand equation is Q_d = 325 — P — 30P_rg + 1.4Y. Here 325 is the repository of all relevant non-specified factors that affect demand for the product. P is the price of the good. The coefficient is negative in accordance with the law of demand. The related good may be either a complement or a substitute. If it is a complement, the coefficient of its price would be negative as in this example. If it is a substitute, the coefficient of its price would be positive. Income (Y), has a positive coefficient, indicating that the good is a normal good. If the coefficient were negative, the good would be an inferior good meaning that the demand for the good would fall as the consumer’s income has increased. Specifying values for the non-price determinants, P_rg = 4.00 and Y = 50, results in demand equation Q = 325 — P — 30(4) +1.4(50) or Q = 275 — P. If income were to increase to 55, the new demand equation would be Q = 282 — P. Graphically, this change in a non-price determinant of demand would be reflected in an outward shift of the demand function caused by a change in the x-intercept.

Demand curve[edit]

In economics the demand curve is the graphical representation of the relationship between the price and the quantity that consumers are willing to purchase. The curve shows how the price of a commodity or service changes as the quantity demanded increases. Every point on the curve is an amount of consumer demand and the corresponding market price. The graph shows the law of demand, which states that people will buy less of something if the price goes up and vice versa.
According to Kotler, eight demand states are possible:

1. Negative demand — Consumers dislike the product and may even pay to avoid it.
2. Nonexistent demand — Consumers may be unaware of or uninterested in the product.
3. Latent demand — Consumers may share a strong need that cannot be satisfied by an existing product.
4. Declining demand — Consumers begin to buy the product less frequently or not at all.
5. Irregular demand — Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis.
6. Full demand — Consumers are adequately buying all products put into the marketplace.
7. Overfull demand — More consumers would like to buy the product than can be satisfied.
8. Unwholesome demand — Consumers may be attracted to products that have undesirable social consequences.^[2]

Price elasticity of demand[edit]

The price elasticity of demand is a measure of the sensitivity of the quantity variable, Q, to changes in the price variable, P. It shows the percent by which the quantity demanded will change as a result of a given percentage change in the price. Thus, a demand elasticity of -2 says that the quantity demanded will fall 2% if the price rises 1%. For infinitesimal changes, the elasticity is (∂Q/∂P)×(P/Q).

Elasticity along linear demand curve[edit]

The slope of a linear demand curve is constant. The elasticity of demand changes continuously as one moves down the demand curve because the ratio of price to quantity continuously falls. At the point the demand curve intersects the y-axis, demand becomes infinitely elastic, because the variable Q appearing in the denominator of the elasticity formula is zero. At the point the demand curve intersects the x-axis, the elasticity is zero, because the variable P appearing in the numerator of the elasticity formula is zero.^[3] At one point on a linear demand curve, demand is unitary elastic: an elasticity of one. For higher prices, the elasticity is greater than 1 in magnitude: demand is said to be elastic because percentage quantity changes are bigger than price changes. For prices below the point of unit elasticity, the elasticity is less than 1 and demand is said to be inelastic.

Constant price elasticity demand[edit]

Constant elasticity of demand occurs when where a and c are parameters, and the constant price elasticity is

Perfectly inelastic demand[edit]

Perfectly inelastic demand is represented by a vertical demand curve. Under perfect price inelasticity of demand, the price has no effect on the quantity demanded. The demand for the good remains the same regardless of how low or high the price. Goods with (nearly) perfectly inelastic demand are typically goods with no substitutes. For instance, insulin is nearly perfectly inelastic. Diabetics need insulin to survive so a change in price would not effect the quantity demanded. Insulin is not perfectly inelastic, however, as a prohibitively high price would cause some individuals to be incapable of purchasing insulin entirely. On the other hand, if insulin was sold at a very low price, it is possible that some individuals would purchase more insulin if they were not able to afford it before. Because of the effects of extreme pricing, no good can be considered truly perfectly inelastic.

Market structure and the demand curve[edit]

In perfectly competitive markets the demand curve, the average revenue curve, and the marginal revenue curve all coincide and are horizontal at the market-given price.^[4] The demand curve is perfectly elastic and coincides with the average and marginal revenue curves. Economic actors are price-takers. Perfectly competitive firms have zero market power; that is, they have no ability to affect the terms and conditions of exchange. A perfectly competitive firm’s decisions are limited to whether to produce and if so, how much. In less than perfectly competitive markets the demand curve is negatively sloped and there is a separate marginal revenue curve. A firm in a less than perfectly competitive market is a price-setter. The firm can decide how much to produce or what price to charge. In deciding one variable the firm is necessarily determining the other variable

Inverse demand function[edit]

In its standard form a linear demand equation is Q = a — bP. That is, quantity demanded is a function of price. The inverse demand equation, or price equation, treats price as a function f of quantity demanded: P = f(Q). To compute the inverse demand equation, simply solve for P from the demand equation.^[5] For example, if the demand equation is Q = 240 — 2P then the inverse demand equation would be P = 120 — .5Q, the right side of which is the inverse demand function.^[6]

The inverse demand function is useful in deriving the total and marginal revenue functions. Total revenue equals price, P, times quantity, Q, or TR = P×Q. Multiply the inverse demand function by Q to derive the total revenue function: TR = (120 — .5Q) × Q = 120Q — 0.5Q². The marginal revenue function is the first derivative of the total revenue function; here MR = 120 — Q. Note that the MR function has the same y-intercept as the inverse demand function in this linear example; the x-intercept of the MR function is one-half the value of that of the demand function, and the slope of the MR function is twice that of the inverse demand function. This relationship holds true for all linear demand equations. The importance of being able to quickly calculate MR is that the profit-maximizing condition for firms regardless of market structure is to produce where marginal revenue equals marginal cost (MC). To derive MC the first derivative of the total cost function is taken. For example, assume cost, C, equals 420 + 60Q + Q². Then MC = 60 + 2Q. Equating MR to MC and solving for Q gives Q = 20. So 20 is the profit maximizing quantity: to find the profit-maximizing price simply plug the value of Q into the inverse demand equation and solve for P.

Residual demand curve[edit]

The demand curve facing a particular firm is called the residual demand curve. The residual demand curve is the market demand that is not met by other firms in the industry at a given price. The residual demand curve is the market demand curve D(p), minus the supply of other organizations, So(p):
Dr(p) = D(p) — So(p)^[7]

Demand function and total revenue[edit]

If the demand curve is linear, then it has the form: p = a — b*q, where p is the price of the good and q is the quantity demanded. The intercept of the curve and the vertical axis is represented by a, meaning the price when no quantity demanded. and b is the slope of the demand function. If the demand function has the form like that, then the Total Revenue should equal quantity demanded times the price of the good, which can be represented by: TR= q*p = q(a-bq).

Is the demand curve for PC firm really flat?[edit]

Practically every introductory microeconomics text describes the demand curve facing a perfectly competitive firm as being flat or horizontal. A horizontal demand curve is perfectly elastic. If there are n identical firms in the market then the elasticity of demand PED facing any one firm is

PED_mi = nPED_m — (n — 1) PES

where PED_m is the market elasticity of demand, PES is the elasticity of supply of each of the other firms, and (n -1) is the number of other firms. This formula suggests two things. The demand curve is not perfectly elastic and if there are a large number of firms in the industry the elasticity of demand for any individual firm will be extremely high and the demand curve facing the firm will be nearly flat.^[7]

For example, assume that there are 80 firms in the industry and that the demand elasticity for industry is -1.0 and the price elasticity of supply is 3. Then

PED_mi = (80 x (-1)) — (79 x 3) = -80 — 237 = -317

That is the firm PED is 317 times as elastic as the market PED. If a firm raised its price «by one tenth of one percent demand would drop by nearly one third.»^[7] if the firm raised its price by three tenths of one percent the quantity demanded would drop by nearly 100%. Three tenths of one percent marks the effective range of pricing power the firm has because any attempt to raise prices by a higher percentage will effectively reduce quantity demanded to zero.

Demand management in economics[edit]

Demand management in economics is the art or science of controlling economic or aggregate demand to avoid a recession. Such management is inspired by Keynesian macroeconomics, and Keynesian economics is sometimes referred to as demand-side economics.

Demand management has a defined set of processes, capabilities and recommended behaviors for companies that produce goods and services. Consumer electronics and goods companies often lead in the application of demand management practices to their demand chains; demand management outcomes are a reflection of policies and programs to influence demand as well as competition and options available to users and consumers. Effective demand management follows the concept of a «closed loop» where feedback from the results of the demand plans is fed back into the planning process to improve the predictability of outcomes. Many practices reflect elements of systems dynamics. Volatility is being recognized as significant an issue as the focus on variance of demand to plans and forecasts.

Different types of goods demand[edit]

Negative demand: If the market response to a product is negative, it shows that people are not aware of the features of the service and the benefits offered. Under such circumstances, the marketing unit of a service firm has to understand the psyche of the potential buyers and find out the prime reason for the rejection of the service. For example: if passengers refuse a bus conductor’s call to board the bus. The service firm has to come up with an appropriate strategy to remove the misunderstandings of the potential buyers. A strategy needs to be designed to transform the negative demand into a positive demand.

No demand: If people are unaware, have insufficient information about a service or due to the consumer’s indifference this type of a demand situation could occur. The marketing unit of the firm should focus on promotional campaigns and communicating reasons for potential customers to use the firm’s services. Service differentiation is one of the popular strategies used to compete in a no demand situation in the market.

Latent demand: At any given time it is impossible to have a set of services that offer total satisfaction to all the needs and wants of society. In the market there exists a gap between desirables and the availables. There is always a search on for better and newer offers to fill the gap between desirability and availability. Latent demand is a phenomenon of any economy at any given time, it should be looked upon as a business opportunity by service firms and they should orient themselves to identify and exploit such opportunities at the right time. For example, a passenger traveling in an ordinary bus dreams of traveling in a luxury bus. Therefore, latent demand is nothing but the gap between desirability and availability.

Seasonal demand: Some services do not have a year-round demand, and might be required only at a certain period of time. Seasons all over the world are diverse. Seasonal demands create many problems for service organizations, such as idling the capacity, fixed cost and excess expenditure on marketing and promotions. Strategies used by firms to overcome this may include nurturing the service consumption habit of customers so as to make the demand unseasonal, or recognizing markets elsewhere in the world during the off-season period. Hence, this presents an opportunity to target different markets with the appropriate season in different parts of the world. For example, the need for Christmas cards comes around once a year.

Demand patterns need to be studied in different segments of the market. Service organizations need to constantly study changing demands related to their service offerings over various time periods. They have to develop a system to chart these demand fluctuations, which helps them in predicting the demand cycles. Demands do fluctuate randomly; therefore, they should be followed on a daily, weekly or monthly basis.

Criticism[edit]

E. F. Schumacher challenges the prevailing economic assumption that fulfilling demand is the purpose of economic activity, offering a framework of what he calls «Buddhist economics» in which wise demands, fulfilling genuine human needs, are distinguished from unwise demands, arising from the five intellectual impairments recognized by Buddhism:^[8]

The cultivation and expansion of needs is the antithesis of wisdom. It is also the antithesis of freedom and peace. Every increase of needs tends to increase one’s dependence on outside forces over which one cannot have control, and therefore increases existential fear. Only by a reduction of needs can one promote a genuine reduction in those tensions which are the ultimate causes of strife and war.^[9]

Demand reduction[edit]

In psychopharmacology[edit]

Demand reduction refers to efforts aimed at reducing the public desire for illegal and illicit drugs. The drug policy is in contrast to the reduction of drug supply, but the two policies are often implemented together.

In energy conservation[edit]

Energy demand management, also known as demand-side management (DSM) or demand-side response (DSR), is the modification of consumer demand for energy through various methods such as financial incentives and behavioral change through education.

See also[edit]

Notes[edit]

Further reading[edit]

• Friedman, Milton (December 1949). «The Marshallian Demand Curve». Journal of Political Economy. 57 (6): 463. doi:10.1086/256879. JSTOR 1826553.

What is Demand?

Demand is common parlance means the desire for an object. But in economics demand is something more than this. In economics “Demand” means the quantity of goods and services which a person can purchase with a requisite amount of money.

The concept ‘demand’ refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a period of time. In economics, demand is something more than desire to purchase. For instance, a beggar may desire food, but due to lack of means to purchase it, his demand is not effective. Thus effective demand for a thing depends on:

• Desire
• Means to purchase
• On willingness to use those means for that purchase. Unless demand is backed by purchasing power or ability to pay, it does not constitute demand.

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These are some definitions of demand given by economists:

For example, everyone desires to possess a Benz car but only a few have the ability to buy it. So everybody cannot be said to have a demand for the car. Thus the demand has three essentials-Desire, Purchasing power and Willingness to purchase.

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Importance of Demand

Demand is considered the basis of the entire process of economic development, hence demand plays an important role in the economic, social and political fields. The importance of demand may be studied under the following heads:

1. Importance in Consumption
2. Advantageous to Producers
3. Importance in Exchange
4. Importance in Distribution
5. Importance in Public Finance
6. Importance of Law of Demand and Elasticity of Demand

Importance in Consumption

Demand implies the schedule of quantities to be purchased over a specific period of time at various prices. A consumer determines the number of various commodities consumed on the basis of his demand.

Advantageous to Producers

Producers maximize the profit by determining the nature, variety, quantity and cost of production on the basis of demand for various commodities and by controlling the supply at the appropriate time. A monopolist also keeps in mind the nature of demand while maximization of his profit.

Importance in Exchange

Quantity demanded is the purchase of a commodity in a certain quantity at a certain price, therefore it is exchanged. This means that the production, purchase and sale of a particular commodity of a particular quality and quantity take place in demand and it is the process of exchange.

The means of exchange viz. money, banking, insurance, transportation, communication etc. are also affected by demand. Continuous growth in demand proves helpful in the progress of exchange as well as the economic development of the country. The basis for the determination of market price, normal price, long-term price, monopolistic price or price discrimination is demand.

Importance in Distribution

Aggregate social production is determined on the basis of social demand. Production scale is increased with an increase in demand. Resources from various sources are procured to fulfil this increased demand. The share in the national product of a factor of production depends upon its demand.

The interest rates remain high in a capitalistic economic system due to the high demand for capital in the production process and on the other hand in a labour-intensive economic system, it is quite natural that wage rates of labour are high due to the high demand for labour.

Importance in Public Finance

Maximization of social welfare is the prime objective of the process of public finance. Sources of public revenue (inflows) and items of public expenditure (outflows) are determined to achieve this objective. The government collects revenue through direct and indirect taxes. The effect of tax on demand is kept in mind while levying taxes.

Income tax is not levied on the general public because higher rates of direct taxes tend to reduce the income and the demand for commodities in society. Similarly, indirect taxes like excise duty, sales tax, octroi, import-export duty etc. are determined by keeping in view their impact on the overall demand.

Items of public expenditure are also determined on the basis of demand. The poor class of the society does not have the potential to spend much on social services e.g. education, health, transportation, medical services, library etc. Hence to increase the demand for those services a substantial part of public expenditure on those heads is advised for increasing social welfare.

Importance of Law of Demand and Elasticity of Demand

Importance of the law of demand and elasticity of demand: The Law of Demand and Elasticity of demand are the most important concepts in economics.

Importance in Religion, Culture and Politics:- Demand for various commodities in society at various points of time is also very important from the religious, cultural and political points of view. Efforts are made to fulfil the demand for various commodities which arises at the time of various social or religious festivals.

Political activities such as the election of government create the demand for banners, posters, etc. which provide employment to a large section of society. Even destructive commodities such as fighting equipment and weapons are required to be produced to fulfil their demand at wartime.

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Types of Demand

These are types of demand explained briefly below:

1. Price Demand
2. Income Demand
3. Cross Demand

Price Demand

Price demand implies the different quantities of the commodity demanded by the consumers at various prices for a particular period of time. In the study of price demand it is assumed that other things remain unchanged i.e. the income, habits, tastes, fashion, etc., do not change. In fact, what we have studied in the earlier pages is related to price demand only. Price demand is shown in the diagram.

In the above figure, DD1 is the demand curve of the commodity X which shows the inverse relationship between price and quantity demanded of the commodity.

Income Demand

It shows the relation between the quantity demanded of a commodity and the income of the consumer. Income demand implies the quantity of a commodity purchased by the consumer at various levels of income, other things remaining the same. Another thing remaining same implies that the price of the commodity taste, fashion, etc. do not change.

Cross Demand

The study of demand of a commodity X with changes in the price of related commodity Y (Assuming other things remain the same) is known as cross demand. Related goods are of two types—substitutes and complementary goods.

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Factors of Demand

Demand for a commodity depends upon many factors like the price of the commodity itself, the price of its substitutes or complements, the income of the purchaser, and the nature of the commodity.

Factors affecting demand for durable consumer goods e.g. cars, washing machines, refrigerators, etc. are different from those affecting non-durable consumer products like foodstuff, soap, etc. Generally, demand is affected by the following factors:

1. Price of the commodity (Px )
2. Availability of Substitutes and Compliments and Their Prices (Pr )
3. Income Level (y)
4. Number of Consumers (N)
5. Distribution of Wealth (D)
6. Consumers, Tastes, Preferences and Fashion (TPF)
7. Possibilities of Price Changes in Near Future (Pf)
8. Climate and Seasons (C)
9. Business Conditions (B)
10. Advertisement and Sales Promotion (Ad)
11. Availability of Consumer Credit (CC)
12. Government Control (GC)
13. Improvement in Quality (I)
14. Changes in Money Supply (M)
15. Changes in Population (CP)

Price of Commodity (Px )

The demand of a commodity depends on the price of the commodity. When price increases, demand will decrease and when price decreases, demand will increase. It means there is an inverse relationship between price and demanded quantity.

Availability of Substitutes and Compliments and Their Prices (Pr )

When the substitutes for a commodity are available demand is less. Similarly, demand rises with rising in the prices of substitutes and it falls with a fall in prices. For example, when tea and coffee both are available demand for tea is less. If the price of coffee falls demand for tea also falls and it rises with the increase in the price of coffee.

Demand rises with the availability of complementary goods and falls with rising in price. For example, the demand for cars increases if petrol price falls and the demand for cars falls with rising in the price of petrol.

Income Level (y)

Demand for a commodity depends upon the income of the consumer. Demand for normal goods rises if the income of consumers rises, but the demand for inferior or Giffen goods decreases because the consumer starts purchasing superior commodities in place of inferior goods. If the income of the consumer decreases demand for normal goods falls but the demand for inferior goods rises.

Number of Consumers (N)

The most important factor affecting demand is the number of consumers in the market. If the number of consumers is large demand is more and if the number of consumers is small demand for the commodity will be less.

Distribution of Wealth (D)

Luxurious goods are demanded more by rich people but a vast majority of people demand necessities of life only. When the government tries to reduce inequalities in the distribution of income in the society then the demand for luxurious goods declines and the demand for essentials and comforts rises.

Consumers, Tastes, Preferences and Fashion (TPF)

Demand for a commodity is affected by the consumer’s taste, preference and fashion. Demand for goods suitable to consumer’s tastes, preferences and fashion is more and will rise constantly. Similarly, the demand for goods disliked by the consumers will be less.

Possibilities of Price Changes in Near Future (Pf)

Possibilities of price changes in the near future for a commodity also affect its demand. If the possibility is that the prices will rise in near future the demand will rise and if the possibility is that the prices will fall in the near future the demand for the commodity will fall.

Climate and Seasons (C)

Different commodities are demanded in different seasons, for example, demand for electric fans, ice, cold drinks etc. rises in summer, whereas their demand is very low in winter. Similarly woollen clothes, tea etc. are demanded more in winter than in summer season.

Business Conditions (B)

The Demand for many commodities rises in the boom and demand for most of the commodities decreased in the depression. Consumers purchase more even at rising prices to save them off at higher prices in boom periods whereas they purchase less expecting a further fall in price in depression.

Advertisement and Sales Promotion (Ad)

Consumers are tempted to purchase the commodity when the usefulness of the commodities is communicated to them through effective advertisements. Therefore effective advertisements and sales promotion are useful for increasing the demand.

Availability of Consumer Credit (CC)

Demand for consumer goods rises with an increase in consumer credit facilities and demand for goods decreases with a fall in consumer credit.

Government Control (GC)

Demand decreases if the government imposes restrictions on the use of the commodity and it rises with the release of restrictions.

Improvement in Quality (I)

Either producer improves the quality of goods their demand increases and the demand falls if the quality of goods deteriorates.

Changes in Money Supply (M)

Demand rises if the money supply in the country increases and if the money supply decreases demand falls.

Changes in Population (CP)

Demand for every commodity will rise if the population in the country is rising continuously. But the demand varies with variations in age groups in the country where the population is stable.

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Demand Schedule

Tabulation of the quantities of a commodity demanded at a particular point of time at various prices is known as a demand schedule.

Types of Demand Schedule

A demand schedule establishes a working relationship between price and quantity demanded. Types of demand schedule are of two kinds:

1. Individual Demand Schedule
2. Market Demand Schedule

Individual Demand Schedule

This demanding schedule indicates the quantities of a particular commodity demanded by an individual at a given time at each of a series of prices. But this does not mean that the prices given in the table are actually prevalent and the commodities are purchased in the given quantities at the given prices.

This table is formulated on the basis of past experience of a particular individual. But in reality, the present demand schedule of an individual may vary from that of his past demand schedule due to changes in his income, tastes, fashion etc.

The individual demand schedule of a person ‘A’ may be explained with the help of the following table:

Individual Demand Schedule

P rice Per Kg. (Rs.)	Quantity Demanded Per Week (Kgs.)
2.50	5
2.00	7
1.50	10
1.00	15

Market Demand Schedule

The market demand schedule is nothing but the total of the individual demand schedules of a commodity in the market. Market demand schedule may be explained with the help of an example:

Let us suppose that there are three buyers, viz. A, B, C are in the market for oranges.

In table first column shows the prices of oranges Rs. per dozen together with the last column showing the total of all the three consumers from the market demand schedule. The market demand of oranges at a price of Rs. 10 per dozen is 15 dozen.

Demand Curve

A demand curve is a diagrammatic representation of the demand schedule. A demand curve for a commodity shows the relationship between quantity demanded and price. A demand curve like the demand schedule is also of two types- (i) Individual demand curve, and (ii) Market demand curve.

The demand curve is derived from the demand schedule shown in the table given in the diagram.

In the above diagram, the line joining the points A, B, C, D & E is the demand curve. A, B, C, D & E are different demand points that show various combinations of prices and quantities and indicate that the quantity demanded commodity increases with a fall in its price.

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Law of Demand

The law of demand establishes a relationship between the quantity demanded and the price of a commodity. According to this law other things remain the same, the quantity demanded of a commodity increases with a fall in its price and the quantity demanded decreases with a rise in its price.

1. Definition of Law of Demand
2. Assumptions of the Law of Demand
3. Characteristics of Law of Demand
4. Reasons of Application of Law of Demand
5. Exceptions of Law of Demand

Definition of Law of Demand

These are definitions of law of demand by economists:

Assumptions of the Law of Demand

The law of demand will hold good only if ‘ceteris paribus’ (other things remaining the same) conditions are applied. ‘Other things remaining the same is called the assumptions of the law of demand. The following are the important assumptions of the law of demand:

• Psychological factors like habit, tastes and preferences of the consumers must remain unchanged.
• Consumer’s money income must be constant.
• The particular commodity in consideration must not be prestigious goods to the consumer.
• There must not be any substitutes for the commodity.
• Prices of other goods remain the same.
• Expectations about future price changes should not be there.
• Quality of the commodity must remain the same.

Diagram shows the demand curve based on the above-mentioned assumptions:

In the above diagram, the demand curve DD is sloping downward from left to right which shows that the quantity demanded increases with a fall in price and the quantity demanded diminishes with a rise in price.

Characteristics of Law of Demand

The following are the main characteristics of the law of demand:

1. Inverse Relationship
2. Price Independent and Demand Dependent Variable
3. Other Things Being Equal
4. Qualitative Statement
5. It is Concerned With Certain Period of Time

Reasons of Application of Law of Demand

The law of demand applies on account of a number of factors that have been described here. These factors are also responsible for the demand curve sloping downward from left to right.

1. Income Effect
2. Substitution Effect
3. Law of Diminishing Marginal Utility
4. Changes in the Number of Buyers
5. New Uses

Exceptions of Law of Demand

The Law of Demand is applicable if the assumptions underlying the law of demand hold good. But there are a few exceptions to the law of demand. Exceptions to the law of demand implies a situation when the quantity demanded increases with a rise in price or the quantity remains either the same or decreases with a fall in price.

In these exceptional cases, the demand curve is positively sloped, rising upward from left to right. The positively sloped demand curve is shown in the diagram:

The following are the exceptions to the law of demand:

1. The Giffen Goods
2. Prestigious Goods or Goods of Snob Value or Articles of Distinction
3. Highly Priced commodity (Ignorance and illusion on the part of the buyer)
4. Speculation
5. Necessaries of Life
6. War or Emergency
7. Specific Brand or Trade Mark Commodity
8. Small Expenditure

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Demand in Economics is an economic principle can be defined as the quantity of a product that a consumer desires to purchase goods and services at a specific price and time.

Factors such as the price of the product, the standard of living of people and change in customers’ preferences influence the demand. The demand for a product in the market is governed by the Laws of Economics

A market is a place where individuals, households, and businesses are engaged in the buying and selling of products and services through various modes.

The working of a market is governed by two forces, which are demand and supply. These two forces play a crucial role in determining the price of a product or service and size of the market.

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Introduction to Demand in Economics

Demand in economics is a relationship between various possible prices of a product and the quantities purchased by the buyer at each price. In this relationship, price is an independent variable and the quantity demanded is the dependent variable.

In a market, the behavior of consumer can be analysed by using the concept of demand.

Also Read: What is Business Economics?

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Meaning of Demand in Economics

In economics by demand, we mean the various quantities of a given good or service which buyer would purchase in one market during a given period of time, at various prices, or at various incomes, or at various prices of related goods.

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Definition of Demand in Economics

We can divide the definitions of demand given by various economists into three Categories:

To consider demand as an effective desire

According to Person – “Demand implies three things

• desire to possess a thing
• means for purchasing it;
• willingness to use those means for purchasing.”

According to this definition there is no difference between demand and want, demand is considered as a synonym of want.

Definition of demand in relation to price

Some learned economists have expressed their views by co-relating demand with price.

Prof. Mill has expressed: “We must mean by the word demand the quantity demanded and remember that this is not a fixed quantity but in general varies according to value.”

In the, words of Waugh, “The demand for any commodity is the relationship between the price and the quantity that will be purchased at that price.”

Definition of Demand in relation to Price as well as Time

Mayers and Benham are worth mentioning economists who are of the view that demand is related, with both, price as well as time.

In the words of Mayers “The demand for goods is a schedule of the amount that buyers would be willing to purchase at all possible prices at one instant of time.”

According to Benham “The demand for anything at a given price, is the amount of it which will be bought per unit of time at that price.”

Essentials of Demand

• To have an effective desire and ability to fulfil the desire and willingness to use those resources for fulfilment of the desire. It means consumer has a need and money to buy it.
• Demand for a particular commodity is related with a particular price for it;
• Demand for a particular commodity is related with per unit of time (daily, weekly, monthly, yearly etc.)

Also Read: What is Demand Schedule?

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Demand Example

1. Demand is always referred to in terms of price and bears no meaning if it is not expressed in relation to price.

   For example, an individual may be willing to purchase a shirt at a price of 500 but may not be willing to purchase the same shirt if it is valued at 1000. In addition, different quantities of a commodity are demanded at different prices.

2. Demand is always referred in terms of a time period and bears no meaning if it is not expressed in relation to a time period.

   For example, a garment manufacturer has a demand for 200 metres of cloth in a month or 2400 metres of cloth in a year.

   A statement referring to demand for a commodity or service must include the following three key factors:

   • The quantity to be purchased
   • The price at which the commodity is to be purchased
   • The time period when the commodity is purchased

Also Read: What is Supply?

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Types of Demand in Economics

7 Types of Demand in Economics are:

1. Price Demand
2. Income Demand
3. Cross Demand
4. Individual demand and Market demand
5. Joint Demand
6. Composite Demand
7. Direct and Derived Demand

Price Demand

Price demand is a demand for different quantities of a product or service that consumers intend to purchase at a given price and time period assuming other factors, such as prices of the related goods, level of income of consumers, and consumer preferences, remain unchanged.

Price demand is inversely proportional to the price of a commodity or service. As the price of a commodity or service rises, its demand falls and vice versa.

Therefore, price demand indicates the functional relationship between the price of a commodity or service and the quantity demanded. It can be mathematically expressed as follows:

Therefore, price demand indicates the functional relationship between the price of a commodity or service and the quantity demanded. It can be mathematically expressed as follows:

D_A= f (P_A) where,
D_A = Demand for commodity A
f = Function
P_A =Price of commodity A

Income Demand

Income demand is a demand for different quantities of a commodity or service that consumers intend to purchase at different levels of income assuming other factors remain the same.

Generally, the demand for a commodity or service increases with an increase in the level of income of individuals except for inferior goods. Therefore, demand and income are directly proportional to normal goods whereas demand and income are inversely proportional to inferior goods.

The relationship between demand and income can be mathematically expressed as follows:

D_A = f ( Y_A ), where,
D_A = Demand for commodity A
f = Function
Y_A = Income of consumer A

Cross Demand

Cross demand is refers to the demand for different quantities of a commodity or service whose demand depends not only on its own price but also the price of other related commodities or services.

For example, tea and coffee are considered to be the substitutes of each other. Thus, when the price of coffee increases, people switch to tea. Consequently, the demand for tea increases. Thus, it can be said that tea and coffee have cross demand.

Mathematically, this can be expressed as follows:

D_A = f (PB), where,
D_A = Demand for commodity A
f = Function
P_B = Price of commodity B

Individual demand and Market demand

Individual demand and market demand: This is the classification of demand based on the number of consumers in the market. In dividual demand refers to the quantity of a commodity or service demanded by an individual consumer at a given price at a given time period.

For example, the quantity of sugar that an individual or household purchases in a month is the individual or household demand. The individual demand of a product is influenced by the price of a product, the income of customers, and their tastes and preferences.

On the other hand, market demand is the aggregate of individual demands of all the consumers of a product over a period of time at a specific price while other factors are constant.

Joint Demand

Joint demand is the quantity demanded two or more commodities or services that are used jointly and are, thus demanded together.

For example, car and petrol, bread and butter, pen and refill, etc. are commodities that are used jointly and are demanded together.

Composite Demand

Composite demand is the demand for commodities or services that have multiple uses. For example, the demand for steel is a result of its use for various purposes like making utensils, car bodies, pipes, cans, etc.

For example, the demand for steel is a result of its use for various purposes like making utensils, car bodies, pipes, cans, etc. In the case of a commodity or service having composite demand, a change in price results in a large change in the demand. This is because the demand for the commodity or service would change across its various usages.

Direct and Derived Demand

Direct and derived demand: Direct demand is the demand for commodities or services meant for final consumption. This demand arises out of the natural desire of an individual to consume a particular product.

For example, the demand for food, shelter, clothes, and vehicles is direct demand as it arises out of the biological, physical, and other personal needs of consumers.

On the other hand, derived demand refers to the demand for a product that arises due to the demand for other products.

For example, the demand for cotton to produce cotton fabrics is derived demand.

Also Read: Types of Demand in Economics

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Determinants of Demand

Determinants of demand are the factors that influence the decision of consumers to purchase a commodity or service.

1. Price of a commodity: The price of a commodity or service is generally inversely proportional to the quantity demanded while other factors are constant.
2. Price of related goods: The demand for a good or service not only depends on its own price but also on the price of related goods.
3. Income of consumers: The level of income of individuals determines their purchasing power. 
4. Tastes and preferences of consumers: The demand for commodity changes with changes in the tastes and preferences of consumers
5. Consumers expectations: Demand for commodities also depends on the consumers’ expectations regarding the future price of a commodity, availability of the commodity, changes in income.
6. Credit policy: The credit policy of suppliers or banks also affects the demand for a commodity.
7. Size and composition of the population: An increase in the size of a population increases the demand for commodities as the number of consumers would increase.
8. Income distribution: Unequal distribution of income results in differences in the income status of different individuals in a nation.
9. Climatic factors: The demand for commodities depends on the climatic conditions of a region such as cold, hot, humid, and dry.
10. Government policy: Government policies have direct impact on the demand for various commodities.

Read Complete: 10 Determinants of Demand

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Importance of Demand

Demand is considered the basis of the entire process of economic development, hence demand plays an important role in the economic, social and political fields.

The importance of demand are:

1. Importance in Consumption
2. Advantageous to producers
3. Importance in Exchange
4. Importance in Distribution
5. Importance in Public Finance
6. Importance of Law of Demand and Elasticity of Demand
7. Importance in Religion, Culture and Politics

Importance in Consumption

Demand implies the schedule of quantities to be purchased over a specific period of time at various prices. A consumer determines the quantity of various commodities to be consumed on the basis of his demand.

Advantageous to producers

Producers maximize the profit by determining the nature, variety, quantity and cost of production on the basis of demand of various commodities and controlling the supply at an appropriate time.

Importance in Exchange

Quantity demanded is the purchase of a commodity in certain quantity at a certain price, therefore it is exchanged. This means that production, purchase and sale of a particular commodity of a particular quality and quantity takes place in demand and it is the process of exchange.

Importance in Distribution

Aggregate social production is determined on the basis of social demand. Production scale is increased with an increase in demand. Resources from various sources are procured to fulfill this increased demand. The share in the national product of a factor of production depends upon its demand.

Importance in Public Finance

Maximization of social welfare is the prime objective of the process of public finance. Sources of public revenue (inflows) and items of public expenditure (outflows) are determined to achieve this objective.

Importance of Law of Demand and Elasticity of Demand

The Law of Demand and Elasticity of demand is the most important concept in economics.

Importance in Religion, Culture and Politics

Demand of various commodities in society at various points of time is also very important from the religious, cultural and political points of view. Efforts are made to fulfill the demand of various commodities that arises at the time of various social or religious festivals.

Also Read: What is Demand Function

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Last Update: Jan 03, 2023

This is a question our experts keep getting from time to time. Now, we have got the complete detailed explanation and answer for everyone, who is interested!

Asked by: Lempi Windler

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In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given period of time. The relationship between price and quantity demanded is also called the demand curve.

What is demand example?

We defined demand as the amount of some product that a consumer is willing and able to purchase at each price. … The prices of related goods can also affect demand. If you need a new car, for example, the price of a Honda may affect your demand for a Ford.

What is the meaning and definition of demand?

Demand is an economic principle referring to a consumer’s desire to purchase goods and services and willingness to pay a price for a specific good or service. … Market demand is the total quantity demanded across all consumers in a market for a given good.

What is demand in your own word?

Definition: Demand is an economic term that refers to the amount of products or services that consumers wish to purchase at any given price level. The mere desire of a consumer for a product is not demand. … In other words, it’s the amount of products or services that consumers are willing and able to purchase.

What is meant by demand and supply?

Demand refers to how much of that product, item, commodity, or service consumers are willing and able to purchase at a particular price. In other words, supply pertains to how much the producers of a product or service are willing to produce and can provide to the market with limited amount of resources available.

23 related questions found

спрос, требование, потребность, запрос, требовать, нуждаться, спрашивать

существительное ↓

глагол ↓

Словосочетания

a piggish demand for more money — алчная потребность иметь больше и больше денег  
a decline in the effective demand — снижение действительного спроса  
huge popular demand for higher education — огромный спрос на высшее образование  
to give a boost to demand — стимулировать спрос  
buoyant demand — оживлённый, огромный спрос  
to demand an explanation — потребовать объяснений  
reasonable demand — разумное требование  
legitimate demand — законное требование  
ransom demand — требование выкупа  
to reject smb.’s demand — отвергать чьё-л. требование  
on demand — по (первому) требованию  
to feed the baby on demand — кормить ребёнка столько раз, сколько он попросит  

Примеры с переводом

Возможные однокоренные слова

demandant  — истец
demanded  — требуемый
demandable  — требуемый
demanding  — требовательный, требующий, взыскательный
demands  — спрос, требование, потребность, запрос, требовать, нуждаться, спрашивать

Формы слова

verb
I/you/we/they: demand
he/she/it: demands
ing ф. (present participle): demanding
2-я ф. (past tense): demanded
3-я ф. (past participle): demanded

noun
ед. ч.(singular): demand
мн. ч.(plural): demands