Demand
• Meaning of Demand: Demand of commodity refers
to the quantity of a commodity which a consumer is
willing to buy at a given price, and time.
• Market Demand: Market Demand refers to the sum
total of the quantities demanded by all the individual
households in the market at various prices in given
time.
• Demand Function: Demand Function is the
functional relationship between demand and factors
affecting demand.
• Dx = f (Px, Po, Y, T, E)
Factors affecting Demand
Following are the factors which affect the Demand.
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Price of Commodity: When the price of commodity rises demand of commodity will decrease and viceversa.
Price of other related commodity: Price of other commodity affect the demand of commodity in two
ways:
Substitute Goods:- In the case of substitute goods, the demand for a commodity rises with a rise in the
Price and fall with the fall in price.
Example- Tea and coffee
Complementary Goods:- In case of complementary goods, the demand for a commodity rises with fall
in the Price and decreases with the rise in the price of complementary goods.
Example: Car and Petrol, Ink and Pen, Bread and Butter.
Income of Consumer:- When the Income of Consumer rises the demand of normal goods increases
and if the income decreases the demand of normal good decreases.
In case of Inferior good the demand will decrease with rise in income and increase with decrease in
income.
Taste and Preference: - If the taste and preference of consumer develop for a commodity the demand
will rise.
Expectation: - If the consumer expects that price in future will rise the demand will rise and vice-versa
Population:- More population, more demand, less population less demand.
Climate: - The demand of commodity changes according to the climate.
Law of Demand
Other things are equal, the demand for a good rises with a
decrease in price and decreases with increase in price.
Px
Qx
Y
Price
D
10
100
P1
9
150
P
P2
8
200
Q1
O
Q
Demand
Q2
D
X
Change in Demand
It is also called shift in demand curve. When
quantity of commodity chang due to change
in factor other than price. It has two types
Y
Y
Price
D
Contraction
of Demand
3
(A)
Price
Expansion of
Demand
Px
2
D1
D
1
D1 Increase in dd
D2 decrease in dd.
D2
10
O
20
QD
30
D
X
O
Q.D.
X
Elasticity of Demand
The elasticity of demand measures the
responsiveness of the quantity demanded due
to change in price of the commodity
Measurement of elasticity of demand
Total Expenditure Method/Total outlay method
If no change in total expenditure as change in
price than Ed=1
If total expenditure and price changes in
opposite direction Ed>1
If total expenditure and price changes in same
direction Ed<1
Proportionate or Percentage Method
Under this method elasticity of demand is
measured by the ratio of the percentage
change in quantity demanded to the
percentage in price.
Ed = Percentage change in Quantity Demanded
Percentage change in Price
Geometric Method/ Point Elasticity
Method
If elasticity of demand is to be measured on the
point of demand curve following formula is to
be used.
ed = Lower segment from the point
Upper segment from the point
Factors effecting elasticity of Demand
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Nature of Goods
Availability of Substitutes
Postponement of Consumption
Number of Uses
Time period
Habit of consumer
Degrees of elasticity of Demand
Perfectly elastic Demand
Perfectly Inelastic Demand
Elastic Demand
Price
Flatter Demand
Curve
E
>
1
D
Quantity
Thanks
• Prepared by:• HANS RAJ MEENA
• K.V. BSF POKARAN