Demand

Meaning of Demand

Definition:
         Demand for any commodity refers to the amount of that commodity that will be purchased, i.e., the amount which consumers are willing and able to purchase at a particular period of time.

In economics, demand is the utility for a good or service of an economic agent, relative to a budget constraint. (Note: This distinguishes "demand" from "quantity demanded", where demand is a listing or graphing of quantity demanded at each possible price. In contrast to demand, quantity demanded is the exact quantity demanded at a certain price. Changing the actual price will change the quantity demanded, but it will not change the demand, because demand is a listing of quantities that would be bought at various prices, not just the actual price.)

Demand is a buyer's willingness and ability to pay a price for a specific quantity of a good or service. Demand refers to how much (quantity) of a product or service is desired by buyers at various prices. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand. The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.

Types of Demand:

• Individual Demand and Market Demand: The quantity of a commodity that an individual consumer is willing to purchase at a given price during a given period of time is known as individual demand. Market demand refers to the total quantity of a commodity that all the households are willing to buy at a given price during a given period of time.

   Individual & market demand curve

• Ex ante and Ex post Demand: Ex ante Demand refers to the amount of goods that consumers want to or willing to buy during a particular time period. Ex post Demand on the other hand refers to the amount of goods that the consumers actually purchase during a specific period.
• Joint Demand: Joint Demand refers to the demand for two or more goods which are used jointly or demanded together. For example, cars & petrol, butter & bread, milk & sugar, etc are the goods which are used together.In this type of demand, the rise in price of one good leads to the fall in demand for the other and vice versa.
• Derived Demand: The demand for a commodity that arises because of the demand for another commodity is called Derived demand. For instance, demand for steel, bricks ,cement, stones, wood, etc.is a derived demand-- derived from the demand for houses and other buildings.
• Composite Demand: Demand for goods that have multiple uses is called composite demand. For example, the demand for steel arises from various uses of steel, such as use of steel in making utensils, bus bodies, room coolers, cars and so on.Thus a commodity is said to have composite demand when it can be put to several alternative uses.

Factors affecting Demand:

Price of the commodity: The most important determinant of the demand of a commodity is the price of the commodity itself. Normally there is an inverse relationship between the price of a commodity and the quantity demanded. It implies that lower the price of goods, higher is the quantity demanded and vice versa. This type of demand is known as price demand. 

Income levels of consumer:  Generally there is direct relationship between income of a consumer and his demand for a product. When an individual’s income goes up, their ability to purchase goods and services increases, and this causes demand to increase. When incomes fall there will be a decrease in the demand for most goods. However this may not always be the case.      

    We may distinguish three types of commodities: i) Normal Goods   ii) Inferior Goods   iii) Inexpensive necessities of life.

     (i) Normal Goods: Normal goods are those goods the demand for which increases with increase in income of consumers and decreases with fall in income.

    (ii) Inferior goods: Inferior goods are those goods the demand for which falls with increase in income of consumer.
   (iii) Inexpensive goods of necessities: In case of inexpensive necessities of life such as salt and matchbox, quantity purchased increases with increase in income upto certain level and thereafter it remains constant irrespective of the level of income.
  The functional relationship between the demand for a commodity and the level of income is known as income demand.

Relation between Income & Demand

Consumer tastes and preferences: Changing tastes and preferences can have a significant effect on demand for different products. Persuasive advertising is designed to cause a change in tastes and preferences and thereby create an increase in demand. 

Prices of related Goods: The demand for a commodity is also affected by the prices of related goods. related goods can be classified into two categories, viz  (i)Substitute or competitive goods,                                                                                                           (ii) Complementary goods
     

      (i) Substitute or competitive goods:Substitute goods are those which satisfy the same type of demand and hence can be used in place of one another. For example, if the price of coffee rises, many consumers will shift from consumption of coffee to consumption of tea because tea has now become relatively cheaper.

Substitute goods

     (ii) Complementary goods: Complementary goods are those goods which are complementary to one another in the sense that they are used jointly or consumed together to satisfy a given want.

                                                          Complementary goods

The way demand for one particular product is affected by a change in price in another product is known as cross demand or cross price effect. the cross demand shows the functional relation between the price of a commodity and demand for some other related commodity
       

Competition: Competitors are always looking to take a bigger share of the market, perhaps by cutting their prices or by introducing a new or better version of a product

Fashions: When a product becomes unfashionable, demand can quickly fall away.