Meaning Of Demand: It economics demand means “the
quantity of any commodity for which the consumers stand ready to buy it market
prices”. More specifically demand is the range of quantities of a commodity
that buyers are willing and able to buy at a different prices in given period
of time.
Demand =
Wants + Purchasing Power + Will To Purchase
There is
functional relationship between price and demand. That is why demand is always
at price.
Characteristics: There are three characteristics of
demand in economics.
·
Willingness And Ability To Pay: Demand is the amount of a commodity
for which a consumer has the willingness and also ability to pay.
·
Demand Is Always At Price: Demand is always at a price without
the reference of price, it is meaningless to say that demand is this much.
·
Demand Is Always For A Specific
Period: Demand is
always at per unit of time.
1)
Price Demand
2)
Income Demand
3)
Cross Demand
1) Price Demand:
If income and other non-price factors such as the taste of consumers, fashion,
season, income of the consumer, remain constant and there is a change only in
price of the commodity, either increases or decreases demand will be also
decreases or increases with price then this demand is “price demand”. Simply
this is determined or generated by the price.
2) Income Demand:
The income demand refers to the various quantity of goods and services which
would be purchased by the consumer at various level of income. When income of
the people increases the standard of lives becomes high but when income are at
lower level. The people would buy only necessary goods.
3) Cross Demand:
If demand od commodity change due to change in prices of its inter-related
goods and other factors remain same, than this demand is called cross demand.
a) Substitution Demand: The substitute one commodity with other commodity because of the price
factor than the demand would be called as substitute demand. For example: there
are two kinds of soap in the market Lux and Dove. These both have same quality
and same price, when the prices of Dove increases people will start to buy a
Lux and decreases the demand of Dove. So we can say that Lux is an substitute
to the Dove.
b) Complementary Demand: It is the inverse of substitute demand. One commodity is the complementary
other. For example, when the prices of oil (diesel or petrol) increases, the
demand of ear decreases because the consumer of car will decreases their demand
due to increase in the prices of petrol, they are deeply related with each
other.
v What Is Law Of Demand?
Law Of Demand: Other things remaining the same and
the price of any commodity increases then its demand falls and when price falls
its demand will increases. In simple language we can say that when the price of
any commodity falls, people are tempted to purchase more commodities. On the
other hand when price of any commodity rises people demand will be decreases.
Demand Schedule: Demand schedule is the statistical
representation of the law of demand. It is a table of different prices of a
commodity and corresponding demand at those prices.
Explanation: A consumer buyers 10kg sugar at 25
rupees per kg. when price falls to 5 rupees his demand increases up to 50kg.
Demand Curve: Demand curve is the geometrical
representation of the demand schedule. In other word, when demand schedule is
transferred and plotted on graph it is human as demand curve.
Explanation: In the demand curve, the price is
shown on the y-axis and the quantity demand is plotted on the x-axis.
Negative Slope: Demand curve always moves from left
to right and down word. Because with the fall in price demand increases and we
have negative slope because of inverse relation between demand and price.
Assumption Of Law Of Demand: While explaining the law we have
stated that other things remaining the same, these non-price factors.
1) Change In Fashion: As the fashion of any commodity changes its demand and price both falls.
So the law of demand can not operate in this case.
2) Change In Taste: Demand for commodity may change due to changes in taste. The demand for
tea will decrease.
3) Change In Weather: Sometimes due to a sudden change of weather this law can not operate.
4) Change In Population: If the population of the country increases the demand of various goods
will rise, even prices are increasing.
5) Invention Of Substitutes: If the cheap and better substitute of any commodity is
invested then the demand of the commodity cannot rise with the fall in price.
6) Changes In Distribution Of Wealth: If an equal distribution of wealth is brought about in a
country then the demand of that commodity which are expensive kg will fall and
demand for basic necessities will increase.
7) Future Expectations: Sometimes people expect that the price of a particular commodity will
rise in near future. So they increase their demand with the rise in price.
8) Changes In The State Of Trade: The total quantity of goods demanded is also effected by the
cyclical fluctuations. So in that case this law cannot operate.
Exceptions Of Law Of Demand: According to the law of demand when
prices of a commodity rise, the demand for them decreases and with fall in
prices the demand increases but there are few cases where the law may not
operate.
a) Price Expectations: If people expect a further rise in the price of any particular
commodity, they may buy some more in spite of rise in price.
b) Inferior Goods:
There are certain goods for which with fall in price, demand does not increase
are called inferior goods. The law of demand for such kinds of goods does not
hold true.
c) Geffen Goods:
If the price of basic goods (potato, sugar, milk etc.) on which the poor spend
a large part of their income declines.
Ø Change Or Shift In Demand
Change in
demand means when consumer buys more or less units of the commodities at the
given prices due to change in other non-price factors like, income, taste,
fashion, prices of inter-related goods, population etc.
For Example: If the level of income in a
commodity rises other factors remaining the same the demand for the goods
increases then the demand curve shifts upward from the original demand curve.