Demand & Supply

Meaning of Demand

Demand means the ability and willingness to buy a specific quality of a commodity of the preveliving price in a given period of time.

Economics use of the word ‘demand’ is made to show the relationship between the prices of a commodity Demand is one of the forces determining price. The theory of demand is related to the economic activities of a consumer, called consumption.

Definition of Demand

According to Prof. Hibdon, “Demand means the various quantities of goods that would be purchased per time period at different prices in a given market.


Three things are necessary for demand.

1. Price of a commodity

2. Amount of the commodity.

3. Bought per unit of time at that price.

Objectives of Demand

  • The general theory of demand.
  • The various types of demand.
  • The factors affecting demand of a product.

Types of Demand

1. Market Demand

2. Price Demand

3. Income Demand

4. Cross Demand

5. Individual Demand

6. Direct Demand

Features of Demand

  • Relationship between demand and price.
  • Demand at a point of time.
  • Difference between desire and demandt.

Demand Theory

Demand theory the relationship between the quantity of a goods consumers will purchase and the price charged for that goods. It describes the way the changes in the quantity of a goods and services/commodity demanded by consumers affects its prices in the market.

Objective of theory of demand analysis

1. It helps in forecasting sales and revenues

2. It provides guidance for manipulation and demand.

3. It provides a basis for apprusing sales means performance

4. It provides a basis for analysing market influences and different product manufacture by business and helps in existing and adopting such influence

5. It is also used to match the competitive scratch of a business unit

Demand Analysis

Demand analysis is a research done to estimate or find out the customer demand for a particular product or services in a particular market. It helps in determining various business decisions. Likes - sales forecasting pricing products.Services marketing advertising spending. Manufacturing decision expansion planning etc.

Demand analysis is the research conducted by companies that aim at understanding customer demand for a certain product.

Law of Demand

The quantity of a commodity demanded in a given time period increases as its price falls keeping other factors such as income, customer preference and other market conditions constand.

Law of demand states that there is an inverse relation between the price of a commodity and its quantity demanded, assuming all other factors affecting demand remain constant of demand law.

(Law of Demand as price falls, the quantity demanded increases and vice versa)

Conditions –

Income of consumers, price of related goods and all of market conditions should be costumer.

Exception to the law of demand

1. Inferior goods or Giffen goods- Giffen goods are the special goods in which demand for a commodity falls in price. In case of certain inferior goods when their prices fall where demand may not rise because of extra purchasing power.


2. Goods expected to become scarce or costly in futures- These goods are purchased by the household in increased quality even when their prices are rising upwards this is due to the fear of further rising prices.


3. Luxury Goods– These are certain goods that become more valuable as their price increases if a product is expensive that its value and utility are perceived to be more and hence the demand of such product increases.


4. Necessary Goods & Services— Necessary products like medicines don’t follow the law of demand as any change in prices will not affect the quality demanded.


Demand Schedule

A table showing the quantities of a good that a consumer is willing and able to buy at prevailing price in a given time period. A demand schedule is a table that shows the quantity demanded of a good or service at different price levels.

A core total quantity of a product that all consumers are willing and payable to purchase at the prevailing price level golden that price of related goods income and after valuable as constance.

Demand Curve

A graphic representation of the relationship between product price and the quantity of the product demanded.

A demand curve is a graphic display of the change in demand of a good resulting from a change in price in a given period of time. On the demand curve graph, the vertical axis denotes the price and the horizontal axis denotes the quantity demanded.

Illustration of the relationship of price to supply (s) and demand (D).

Characteristics of demand curve

1. Position of demand curve – A demand curve position refers to its placement on the group.

  • The demand curve is positioned to the right. It indicates a high quantity of demand from consumers at a given price.
  • When the demand curve is law on the graph it indicates that law price creates steady demand (law quantity of demand from consumer at a demand consumer at a given price)

2. Slope of Demand curve – The rate of change in demand over various price points gives a demand curve its slope.

  • Above graph shows different characteristics with respect to slope of the demand.
  • In the first graph, which have relatively steep demand curves have low price sensitivity which means a change in price will have a slope impact on quantity demanded.
  • On the other hand in the case of the second graph the steepness is low and the curve shows high price sensitivity which means a small change in price will have an impact on quantity demand.

3. Shift in demand curve – Shift refers to a demand curve change in position over time. As the demand curve shifts toward right the quantity at the given price will increase or if the graph shifts left or downward the quantity at a given price decreases.

Cause for downward sloping of demand curve


(i) The law of diminishing marginal utility :- According to this principle the marginal utility of a commodity reduces the quantity of goods more consequently. Whom the quantity is more the price will fall and the demand will increase. Hence consumers will demand more goods when prices are less which will cause downward sloping at the demand curve.


(ii) Substitution effects:- Consumers often classify various commodities as substitutes. For Example - When the price of coffee rises. Consumers may switch to buying tea more as it will become relatively cheaper economics refers to this as the substitution effects. Hence the price of tea reduces, its demand will increase and the demand curve will be downward sloping.


(iii) Income effect :– According to this principle the real income of people increases while the price of commodities reduces , because now they spend less and the saved money is used to purchase more.


(iv) New buyers :- Whenever the price of a commodity decreases, new buyers enter into a market and start purchasing it. These are one who could not afford the product previously.


(v) Old buyers :– If the price of a commodity decreases then some buyers will demand more products which ultimately increase the demand and will cause demand and will cause downward sloping of the demand curve.

Elasticity of demand

Elasticity can be defined as a major of variable sensitivity to the charge in other variables. This sensitivity in the case of demand can be demanded on price, income and price of related products.

Elasticity of demand refers to the shift in demand for an item or service when a change occurs in one of the variables that buyers consider as part of their purchase decisions.

Ex- The charge in price will have impacts on quality demand as demand to sensitivity price in elasticity charge a demand to charge in price.


Formulas-

ED = % change in quantity demand / % change in determinant


Elasticity of demand is the ratio of % change in quantity demand and % change in determinant of demand here determinants are income and price.

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