CLASS -12TH MICRO ECONOMICS

CHAPTER 2 :DEMAND

Introduction

This chapter takes into account the demand and the factors affecting it, both at the personal and market level. It highlights the law of demand, movement along the demand curve and the related changes. Explanation for the downward slope in the law of demand and exceptions to it are dealt with.

1. Demand is a quantity of a commodity which a consumer wishes to purchase at a given level of price and during a specified period of time.
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.

2. Desire is just a wish for a commodity and a person can desire a commodity even if he does not have the capacity to buy it from the market whereas demand is desire backed by purchasing power that is to say whatever an individual is willing to buy from the market in a given period of time at a given price. A poor person can desire to own a car but that will not become a demand because he does not have the purchasing power to buy a car from the market.
3. Factors affecting personal (individual) demand:

(a) Price of the commodity: Inverse
relationship exists between price of the commodity and demand of that commodity.
It means with the rise in price of the commodity the demand of that commodity falls and vice-versa.


(b) Price of related goods: It may be of two types:

1. Substitute goods
2. Complementary goods

Let us discuss it in detail,

(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.

For example, if Black and White TV set goes out of fashion, its demand will fall. Similarly, a student may demand more of books and pens than utensils of his preferences and taste.
Miscellaneous: Some of the other factors affecting the demand of a consumer are: Change in weather, change in number of family members, expected change in future price, etc.

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.

5. Factors affecting Market demand:

1. Price of the commodity
2. Price of related commodity
3. Income of a consumer
4. Taste and preference of a consumer
5. Miscellaneous
6. Population Size: Demand increases with the increase in population and decreases with the decrease in population. This is because with the increase (or decrease) in population size, the number of buyers of the product tends to increase (or decrease). Composition of population also affects demand. If composition of population changes, namely, female population increases, demand for goods meant for women will go up.
7. Distribution of Income: Market demand is also influenced by change in distribution of income in the society. If income is not equally distributed, there will be less demand. If income is equally distributed, there will be more demand.

6. Demand function shows the relationship between quantity demanded for a particular commodity and the factors that are influencing it.

7. Individual demand function refers to the functional relationship between individual demand and the factors affecting the individual demand.

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:

1. Individual Demand Schedule
2. Market Demand Schedule

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,