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DEMAND

DETERMINANTS &
TYPES

Demand

Demand refers to the quantity of a commodity which


a consumer is willing to buy at a particular price
during a particular period of time.

Demand:
Demand for a commodity refers to the quantity of the
commodity which an individual consumer or a
household is willing to purchase per unit of time at a
particular price.
The definition for demand implies:
Desire of the commodity to buy the product
His willingness to buy the product
Sufficient purchasing power in his possession to
buy the product.

Individual and Household Demand

Demand arises from an individual.


There are commodities which are generally demanded by
individual consumers. E.g. Cigarettes, footwear etc which
are called as Individual Demand
There are commodities which are demanded by
households. E.g. Refrigerator, house etc which are called
as Household Demand.

Price of the Commodity:

A Consumer buys more of a commodity when its price


declines and vice-versa.
For any normal good the price of a commodity and its
demand varies inversely other factors remaining constant.
A fall in the price of a normal good leads to rise in consumers
purchasing power. He can buy more of the product. This is
called as Substitution Effect.
An increase in price will reduce his purchasing power and
thereby reducing demand for the commodity. This is called as
Income Effect.

Income of the Consumer

An increase in the income of the consumer will lead to increase in


purchasing power of consumer. He would buy more of a product that he had
bought earlier.
Here the extent of increase may differ between commodities.
The shifts in the quantity demanded and income move in the same
direction.
Incase of commodities like foods, fruits and vegetables the quantity
demanded increases with an increase in income (beyond a period, the
demand remains unchanged even with an increase in income).
There are cases where the quantity demanded decreases even with an
increase in income (Giffen Goods or Inferior Goods) Negative or
Exceptional Demand Curve.

Price of Related Goods:

A change in price of one commodity influences the demand of


the other commodity, then, the two commodities are related.
When price of one commodity and the quantity demanded of
other commodity move in the same direction the two are
called as Substitutes (Goods that have essentially the same
use).
When price of one commodity and the quantity demanded of
the other commodity move in opposite direction the two are
called as Complements (Goods that are used together).

Tastes and Preferences:

The change in tastes and preferences of a


consumer in favour of a commodity
results in greater demand for a
commodity and vice versa.

Advertisement:

It is to influence the tastes and preference of


consumers towards a product and increase
sales.

Expectations:

Expectations of are two types:


Related to their future income: If the consumer expects a
higher income in future, he spends more at present and
thereby the demand for goods increases and vice versa.
Related to future price of the good and its related goods:
If the consumer expects the future prices of the goods to
increase then he would rather like to buy the commodity
now than later. This would increase the demand for the
commodity. The opposite holds good when it is expected
that prices in future will come down.

Demand Function Meaning:

When this relationship relates to the demand by an individual


consumer it is known a individuals demand function.
When it relates to the market it is called market demand
function.
A mathematical expression of the relationship between
quantity demanded of the commodity and its determinants is
known as the demand function.

Demand Function Meaning:

Mathematical Expression of Demand Function (Individual Demand):


QdX = f(Px, Y, P1.Pn-1, T, A, Ey, Ep, u)

QdX

refers to the quantity demanded of product X

Px,

refers to the price of the product X

Y
refers to the level of household income
P1.Pn-1
refers to the prices of all the other related products in economy
(related products include substitutes and compliments)
T
refers to the tastes of the consumers
A
refers to the advertising
Ey
refers to the expected future income

Ep

refers to the expected future prices

refers to all those determinants which are not covered in the above.

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