Escolar Documentos
Profissional Documentos
Cultura Documentos
In other words, demand for a commodity refers to the desire to buy a commodity backed with
sufficient purchasing power and the willingness to spend.
1. Substitute goods
2. Complementary goods
(i) Substitute Goods: Substitute goods are those goods which can be used in place of
another goods and give the same satisfaction to a consumer.
There would always exist a direct relationship between the price of substitute goods and
demand for given commodity.
It means with an increase in price of substitute goods, the demand for given commodity also
rises and vice-versa. For example, Pepsi and Coke.
(ii) Complementary Goods: Complementary goods are those which are useless in the
absence of another goods and which are demanded jointly.
There would always exist an inverse relationship between price of complementary goods and
demand for given commodity.
It means, with a rise in price of complementary goods, the demand for given commodity falls
and vice-versa. For example pen and refill.
1. (c) Income of a Consumer: There are three types of goods:
For Normal Commodity: For normal commodity, with a rise in income, the demand of
the commodity also rises and vice-versa. Shortly, direct relationship exists between
income of a consumer and demand of normal commodity.
2. For Inferior Goods: For inferior goods, with a rise in income, the demand of the
commodity falls and vice-versa.
Shortly, inverse relationship exists between income of a consumer and demand of
inferior goods.
3. For Necessity Goods: For necessity goods, whether income increases or decreases,
quantity demanded remains constant.
(d) Taste and Preferences of the Consumer: Tastes, preferences and habits of a consumer also
influence its demand for a commodity.
4. Market demand refers to the quantity of a commodity that all the consumers are willing and
able to buy, at a particular price during a given period of time.
8. Market demand function refers to the functional relationship between market demand and
the factors affecting the market demand.
9. Demand Schedule is a table showing different quantities being demanded of a given
commodity at various levels of price. It shows the inverse relationship between price of the
commodity and its quantity demanded. It is of two types:
10. Individual demand schedule refers to a table that shows various quantities of a commodity
that a consumer is willing to purchase at different prices during a given period of time.
11. Market demand schedule is a tabular statement showing various quantities of a commodity
that all the consumers are willing to buy at various levels of price. It is the sum of all individual
demand schedules at each and every price.
Market demand schedule can be expressed as,
Movement Along The Demand Curve Or Change In Quantity Demandend
1. It is based on Law of Demand which states that quantity demanded of the commodity
changes due to the changes in price of the commodity.
2. The change in quantity demanded due to the change in price of the commodity is known as
movement along the demand curve. It may be of two types; namely,
(a) Expansion in Demand (Increase in quantity demanded)
(b) Contraction in Demand (Decrease in quantity demanded)
3. Expansion in Demand (Increase in quantity demanded or downward movement along
the demand curve):
(a) It is based on Law of demand which states that quantity demanded of the commodity rises
due to the fall in price of the commodity.
(b) The rise in quantity demanded due to the fall in price of the commodity, is known as
expansion in demand.
(c) It is shown in the figure given below
• In the given diagram price is measured on vertical axis whereas quantity demanded is
measured on horizontal axis. A consumer is demanding OQ quantity at OP price.
• But, due to fall in price of the commodity from OP to OP1 the quantity demanded rises from
OQ to OQ1which is known as expansion in demand.
1. It is based on factor other than price. If demand changes due to the change in factors
other than price, it is known as shift in demand curve.
2. It may be of two types,
(a) Increase in Demand (b) Decrease in Demand
(a) Increase in Demand:
(j) An increase in demand means that consumers now demand more at a given price of a
commodity.
(ii) It’s conditions are:
1. There is a inverse relationship between price of the commodity and quantity demanded
for that commodity which causes demand curve to slope downward from left to right.
2. It is because of the following reasons:
(a) Income effect:
(i) Quantity demanded of a commodity changes due to change in purchasing power (real
income), caused by change in price of a commodity is called Income Effect.
(ii) Any change in the price of a commodity affects the purchasing power or real income of a
consumers although his money income remains the same.
(iii) When price of a commodity rises more has to be spent on purchase of the same quantity
of that commodity. Thus, rise in price of commodity leads to fall in real income, which will
thereby reduce quantity demanded is known as Income effect.
It refers to substitution of one commodity in place of another commodity when it becomes relatively
cheaper.
(ii) A rise in price of the commodity let coke, also means that price of its substitute, let pepsi, has
fallen in relation to that of coke, even though the price of pepsi remains unchanged. So, people will
buy more of pepsi and less of coke when price of coke rises.
(iii) In other words, consumers will substitute pepsi for coke. This is called Substitution effect.
(c) Law of Diminishing Marginal Utility:
(i) This law states that when a consumer consumes more and more units of a commodity, every
additional unit of a commodity gives lesser and lesser satisfaction and marginal utility decreases.
(ii The consumer consumes a commodity till marginal utility (benefit) he gets equals to the price (cost)
they pay, i.e., where benefit = cost.
(iii) For example, a thirsty man gets the maximum satisfaction (utility) from the first glass of water.
Lesser utility from the 2nd glass of water, still lesser from the 3rd glass of water and so on. Clearly, if
a consumer wants to buy more units of the commodity, he would like to do so at a lower price. Since,
the utility derived from additional unit is lower.
(d) Additional consumer:
(i) When price of a commodity falls, two effects are quite possible:
* New consumers, that is, consumers that were not able to afford a commodity previously, starts
demanding it at a lower price.
• Old consumers of the commodity starts demanding more of the same commodity by spending the
same amount of money.
(ii) As the result of old and new buyers push up the demand for a commodity when price falls.
4. Necessities:
(a) The law of demand is not seen operating in case of necessities of life such as food grain,
salt, matchstick, milk for children, etc.
(b) A minimum quantity of these goods has to be bought whether the prices are high or low. In
such cases, law of demand fails to operate.
5. Ignorance: Being ignorant of prevailing prices, a consumer may buy more of a
commodity when its price has gone up.
6. Emergency: In times of emergency like flood, famine or war, the households do not
behave in a normal way and consequently law of demand may not operate.