Economics

Econo Notes
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Demand

Class 11ᵗʰ
 Determinants of Demand (Individual Demand)
Desire means a mera wish to have a commodity.
Wants is that desire which is backed by the ability and willingness to satisfy it.

Demand is the quantity of a commodity that a consumer is willing and able to

buy, at each possible price during a given period of time.

Willingness to buy. Price of the commodity.

Ability to purchase. Period of time.

₹ 1,20,000

Types of Demand

Individual Demand Market Demand

Individual Demand refers to the Market Demand refers to the

quantity of accommodate that a quantity of a commodity that all
consumer is willing and able to consumers are willing are able to
buy, at each possible price during buy, at eat possible price during a
a given period of time. given period of time.

Determinants of Demand

Price of the Price of Income Tastes Expectation

Given Related of the and of change
Commodity Goods Consumer Preferences in the Price
in Future
Price of the Given Commodity
It is the most important factor affecting demand for the given commodity
generally, there exists an inverse relationship between price and quantity
demanded. It means, As price increases, quantity demanded falls due to decreases
in the satisfaction level of consumers.

Types of Related Goods

Substitute goods Complementary goods

Substitute goods are those

Complementary goods are
goods which can be used in
those goods which are used
place of one another for
together to satisfy a
satisfaction of a particular
particular want.
want. eg. Car, Petrol.
eg. Tea, Coffee.

Income of a Consumer
Normal Goods
Inferior Goods
Normal Goods
Increase in income leads to price in its demand, while a decrease in income
reduce the demand.

Inferior Goods
Increase in income reduces the demand, while a decrease in income leads to rise
in demand.

Tastes and Preference

Tastes and preferences of the consumer directly influence the demand for a
commodity. If a commodity is in a fashion or is preferred by the consumers, then
then demand for such a commodity rises. On the other hand, demand for a
commodity falls, if the consumers have no taste for that commodity.

Expectation of change in the Price in Future

If the price of a certain commodity is expected to increase in near future, then
people will buy more of that commodity than what they normally buy there exists
a direct relationship between expectation of change in the prices in future and
change in demand in the current period.
Determinants of Market Demand

Size and Composition

Season and Weather Distribution of Income
of Population

Size and Composition of Population

Increase in population rises the market demand, while decrease in population
reduce the market demand.

Season and Weather

The seasonal and weather conditions also affect the market demand for a
commodity.

Distribution of Income
If income in the country is equitably distributed, then market demand for
commodities will be more. However, if income distribution is uneven, i.e. people
are either very rich or very poor, then market demand will remain at lower level.

Demand Functions
Demand function shows the relationship between quantity demanded for a
particular commodity and the factor influencing it.

Individual Demand Function:

Individual demand function refer to the functional relationship between individual
demand and the factors affecting individual demand.
It is expressed as : Dx = f (Px , Pr , Y, T, F).
Where :
Dx = Demand for Commodity x Px = Price of the given Commodity x
Pr = Prices of Related Goods; Y = Income of the Consumer;
T = Tastes and Preferences; F = Expectation of change in Price in Future

Demand function is just a short- hand way of saying that quantity demanded
(D x ), which is on left-hand side, is assumed to depend on the variables that are
listed on the right-hand side.
Market Demand Function:
Market demand function refers to the functional relationship between market
demand and the factors affecting market demand.

Dx =f(Px , Pr , Y, T, F, P , S, D)
o
Where :
Dx = Market Demand for Commodity x Px = Price of the given Commodity x
Pr = Prices of Related Goods; Y = Income of the Consumer
T = Tastes and Preferences; F = Expectation of change in Price in
Po = Size and Composition of population; Future
D = Dist ributionof Income S = Season and weather;

Demand Schedule
Demand Schedule is a tabular statement showing various quantities of a
commodity being demanded at various levels of price, during a given period of
time.

Individual Demand Schedule:

It refers to a tabular statement showing various quantities of a commodity that a
consumer is willing to buy at various level of price, during a given period of time.

Market Demand Schedule:

It refers to a tabular statement showing various quantities of a commodity that
all the consumers are willing to buy at various level of price, during a given
period of time.
Demand Schedule

Individual Demand Schedule: Market Demand Schedule: Amazing

Sanidhya Individual Demand (in units) Market

Price in (₹) Price
Sir Demand
in (₹)
Sanidhya Sir Digraj Sir (in units)
5 1
5 1 2 1+2=3
4 2
4 2 3 2+3=5

3 3
3 3 4 3+4=7

2 4
2 4 5 4+5=9

1 5 1 5 6 5 + 6 = 11
Demand Curve
It is a graphical representation of demand schedule.

Individual Demand Curve

Individual demand curve refers to a
graphical representation of individual
demand schedule.

Market Demand Curve

Market demand curve refers to a
graphical representation of market
demand schedule. It is obtained by
horizontal summation of individual
demand curves.

Slope of Demand Curve

Slope of a curve is defined as the
change in variable on the Y-axis
divided by the change in variable on
the X-axis. So, the slope of Demand
Curve equals the change in price
divided by the change in quantity.

Law of Demand
Law of Demand States the inverse relationship between price and quantity
demanding, keeping other factors constant (ceteris paribus ) this law is also
known as ' First Law of Purchase '.
Assumption of Law of Demand
Prices of substitute goods do not change.
Prices of complementary goods remain constant.
Income of the consumer remains the same.
There is no expectation of change in price in the future.
Tastes and preferences of the consumer remain the same.

Important Facts about Law of Demand

Inverse Qualitative NOT No Proportional

One sided
Relationship Quantitative Relationship

Reasons Of Law of Demand

1. Law of Diminishing Marginal Utility Fantastic

Law of Diminishing Marginal Utility states that as we consume more and more
units of a commodity, the utility derived from each successive unit goes on
decreasing.

2. Substitute Effect
Substitute Effect refers to substituting one commodity in place of other when it
becomes relatively cheaper.

3. Income
Income effect refers to effect on demand when real income of the consumer
changes due to change in price of the given commodity.

4. Additional Consumers
When price of a commodity falls, many new consumers, not in a position to buy
it earlier due to its high price, starts purchasing it.

5. Different Uses
Some commodities like milk, electricity, etc. have several uses, some of which
are more important than the others.
Exceptions of Law of Demand
In certain special circumstances the Law of Demand fails i.e. rise in price may
increase the demand.

Giffen Goods
These are special kind of inferior goods on which the consumer spends a large
part of his income and their demand raises with an increase in price and
demand falls with decrease in price.

Fashion Related Goods

Goods related to fashion do not follow the law of demand and their demand
increases even with a rise in their prices.

Fear of shortage
Of the consumer except a shortage or scarcity of a particular commodity in the
near future, they would start buying more and more of that commodity in the
current period even if their price are rising.

Ignorance
Consumers may buy more of a commodity at a higher price when they are
ignorant of the prevailing prices of the commodity in the market.

Status Symbol Goods or Goods of Ostentation

The exception related to certain prestige goods which are used as status symbols.

Necessities of life
Another exception occurs in the use of such commodities, which become necessities
of life due to their constant use.

Change in Weather
With change in season / weather, demand for certain commodities also changes,
irrespective of any change in their prices.
 Change in Quantity Demanded

Change in price

Leads to

Movement along with the Demand curve

Either Or

Downward Movement Upward Movement

Known as Known as

Expansion in Demand Contraction in Demand

(due to decrease in Price) (due to Increase in Price)

Expansion of Demand
Expansion in demand refers to a rise in the quantity demanded due to a fall in
the price of commodity, other factors remaining constant.

It leads to a downward movement along the same demand curve.

It is also known as ' Extension in Demand ' or ' Increase in
Quantity Demanded '

Price in (₹) Demand Units

20 100

15 150
Contraction in Demand
Contraction in demand refers to a fall in the quantity demanded due to a rise in
the price of commodity, other factors remaining constant
It leads to an upward movement along the same demand curve.
It is also known as ' Decrease in Quantity Demanded '.

Price in (₹) Demand Units

20 100

25 70

Change in Demanded
Occur due to

Change in Factors other than Price

Leads to

Shift in Demand Curve

Either Or

Rightward Shift Leftward Shift

Known as Known as

Increase in Demand (due to Decrease in Demand (due to

favourable change in other unfavourable change in other
factors at the same price). factors at the same price).
Increase in Demand
Increase in Demand refers to a rise in the demand of a commodity caused due to
any factor other than the own price of the commodity.

Price in (₹) Demand Units Income

20 100 10000

20 150 20000

Decrease in Demand
Decrease in Demand refers to a fall in the demand of a commodity caused due to
any factor other than the own price of the commodity.

Price in (₹) Demand Units Income

20 100 10000

20 70 5000

Shift in Demand Curve (Change in Demand)

A change in one of 'other factors' shifts the demand curve.

When the demand of a commodity changes due to change in any factor other
than the own price of the commodity, it is known as a change in demand. It is
expressed as a shift in the demand curve.

Change in price of substitute goods;

Change in price of complementary goods;
Change in income of consumers;
Change in testes and preferences;
Expectation of change in price in future;
Change in population;
Change in distribution of income;
Change in season and weather.
Change in Quantity Demanded Vs Change in Demand

Change in Quantity Demanded

Change in Demand
Basis (Movement along the demand
(Shift of Demand curve)
curve)

1. Factors It is increase or decrease in It is increase or decrease in

responsible demand of a commodity due to quantity demanded due to price of
for rise or the factors other than price of the commodity while keeping other
fall the commodity. factors constant.

2. Price No price effect i.e., At the Price effect is negative i.e., At a

effect same price demand is more. lower price demand is more.

Demand curve remains the same.

No price effect i.e., In case of
However, in case of increase in
3. Shift of increase in demand, demand
quantity demanded there is a
Demand curve shifts to the right and in
downward movement and in case
curve case of decrease in demand
of decrease in quantity demanded
demand curve shifts to the left.
there is upward movement.

4. Diagram

Decrease in Q o Q Q Increase in
Demand of Demand of
Leftward shift Rightward shift

Price Quantity Demanded Price Quantity Demanded

5. Demand 10 100 10 120
schedule 10 50 10 100
10 200 10 80

Kinds of Demand

Price Demand Maja aaya

Price demand refers to a relationship between the price and demand of a
commodity, assuming other factors constant.
Income Demand
Income demand refers to a relationship between the income of consumer and the
quantity demanded for a commodity, assuming other factors constant.

Cross Demand
Cross demand refers to a relationship between the demand of a given commodity
and the prices of related commodities, assuming other things remaining constant.

Joint Demand
When two or more goods are demanded simultaneously to satisfy a particular
want, then such a demand is called joint demand.

Composite Demand
When commodity can be put to several uses, it's demand is known as composite
demand.

Derived Demand
Demand for a commodity, which depends on the demand for other goods, is
known as derived demand.

Direct Demand
When a commodity satisfies the wants directly, it's demand in termed as direct
demand.

Alternative Demand
Demand is known as alternative demand, when it can be satisfied by different
alternatives.

Competitive Demand
Two goods are close substitute of each other and increase in demand for one of
them will decrease the demand for the other, then the demand for anyone is
called competitive demand.