3A.

Demand Analysis
Meaning of Demand - In Economics, demand means a 3. Price of Substitute Goods:
desire which is backed by willingness and ability to pay. If a substitute good is available at a lower price then
people will demand cheaper substitute good than
Demand Schedule: Demand schedule is a tabular costly good.
representation of the functional relationship between price 4. Price of Complementary Goods:
and quantity demanded for a particular commodity.
Change in the price of one commodity would also
Individual Demand Schedule affect the demand for other commodity.
Individual demand is the quantity of a commodity 5. Nature of product:
demanded by a consumer at a given price during a given If a commodity is a necessity and its use is unavoidable,
period of time. then its demand will continue to be the same
irrespective of the corresponding price
6. Size of Population:
Larger the size of population, greater will be the
demand for a commodity and smaller the size of
population smaller will be the demand for a
commodity.
7. Expectations about future prices:
Market Demand Schedule If the consumer expects the price to fall in future, he
Market demand is total demand for a commodity from all will buy less in the present at the prevailing price.
the consumers at a given price during a given period of 8. Advertisement:
time. Advertisement, sales promotion scheme and effective
salesmanship tend to change the preferences of the
consumers and lead to demand for many products.
9. Tastes, Habits and Fashions:
Taste and habits of a consumer influence the demand
for a commodity.
10. Level of Taxation:
High rates of taxes on goods or services would increase
Types of Demand the price of the goods or services.

1. Direct demand: Law of Demand:

Demand by the consumer for goods which satisfy their wants
The law of demand was introduced by Prof. Alfred Marshall
directly.
2. Indirect demand: in his book, ‘Principles of Economics’, which was published
Indirect demand is also known as derived demand. It refers in 1890. The law explains the functional relationship
to demand for goods which are needed for further between price and quantity demanded
production. It is the demand for producer's goods.
3. Complementary/Joint demand:
Statement of the Law:
When two or more goods are demanded jointly to satisfy a According to Prof. Alfred Marshall, “Other things being
single want, it is known as joint or complementary demand. equal, higher the price of a commodity, smaller is the
4. Composite demand: quantity demanded and lower the price of a commodity,
The demand for a commodity which can be put to several larger is the quantity demanded.”
uses is known as composite demand.
5. Competitive demand: Assumptions
It is demand for those goods which are substitute.
1. Constant level of income: consumer’s income
Determinants of Demand should remain constant.
2. No change in size of population: It is assumed that
1. Price: the size of population remains unchanged
Consumers prefer to purchase a product in large 3. Prices of substitute goods remain constant: It is
quantities when price of a product is less and they assumed that the prices of substitutes remain
purchase a product in small quantities when price of a unchanged.
product is high.
4. Prices of complementary goods remain constant:
2. Income: It is assumed that the prices of complementary goods
Rise in income will lead to a rise in demand for the remain unchanged because a change in the price of
commodity and a fall in income will lead to a fall in one good will affect the demand for the other.
demand for the commodity.
5. No expectations about future changes in prices: Contraction of Demand: A fall in demand due to rise in price
It is assumed that consumers do not expect any further alone. Other factors like tastes, income of the consumer, size of
change in price in the near future. population etc. remain unchanged.
6. No change in tastes, habits, preferences, fashions
etc.: It is assumed that consumers' tastes, habits, Demand curve moves in the
preferences, fashions etc. should remain unchanged upward direction on the same
7. No change in taxation policy: Taxation policy of the demand curve.

government has a great impact on demand for various

goods and services Therefore, it is assumed that there
is no change in the policy of taxation declared by
Government. Changes in Demand
When demand for a commodity increases or decreases due to
Demand Schedule changes in other factors and price remains constant, it is known as
changes in demand.

Increase in demand: It refers to increase in quantity demanded

due to favourable changes in other factors like tastes, income of
the consumer, climatic conditions etc. and price remains constant.

Exceptions
Demand curve shifts to the
• Giffen's paradox: Inferior goods or low-quality goods are
right hand side of the
those goods whose demand does not rise even if their price
original demand curve
falls. At times, demand decreases when the price of such
commodities fall.
• Prestige goods: Expensive goods like diamond, gold etc. are
status symbol. So rich people buy more of it, even when their
prices are high. Decrease in demand: It refers to decrease in quantity
• Speculation: The law of demand does not hold true when demanded due to unfavourable changes in other factors like
people expect prices to rise still further. In this case, although tastes, income of the consumer, climatic conditions etc. and price
the prices have risen today, consumers will demand more in remains constant.
anticipation of further rise in price. Demand curve shifts to the
• Price illusion: Consumers have an illusion that high priced left hand side of the
goods are of a better quality. Therefore, the demand for such original demand curve
goods tend to increase with a rise in their prices.
• Ignorance: Sometimes, due to ignorance people buy more
of a commodity at high price. This may happen when
consumer is ignorant about the price of that commodity at
other places.
• Habitual goods: Due to habit of consumption, certain
goods like tea is purchased in required quantities even at a
higher price.

Variations in Demand
When the demand for a commodity falls or rises due to a
change in price alone and other factors remain constant, it
is called variations in demand. It is of two types –

Expansion of demand: Rise in quantity demanded due to fall

in price alone while other factors like tastes, income of the
consumer, size of population etc. remain unchanged.

Demand moves in downward

direction on the same demand
curve