1.
Demand for a
commodity is the quantity of that commodity which an individual(or buyer) is
willing to purchase at different prices within a given period of time.
2.
Market demand
means the total quantity of a commodity that all its buyers are willing to
purchase at different prices over a given period of time.
fig. Explaining Market Demand |
3.
Demand for a
commodity depends on a number of factors. The important factors that affect an
individual demand for a commodity are:
(i)
Price of the
commodity,
(ii)
Income of the individual
consumer,
(iii)
Price of related
goods and
(iv)
Tastes and
preferences of the individual.
4.
The first
determinant of demand for a commodity is its price. Other things remaining the
same, when the price of a commodity falls, its quantity demanded by a consumer rises
and when its price rises, its quantity demanded falls. In other words, there is
an inverse relationship between price of a commodity and its quantity demanded.
5.
A demand schedule
is a tabular statement that states the different quantities of a commodity that
would be demanded by a household at different prices.
pic. 2 Example of Demand Schedule |
6.
When a demand
schedule is depicted on the graph paper, it becomes the demand curve. A demand
curve shows graphically the various quantity demanded of a commodity by a
particular household at various levels of price.
7.
The law of demand
states that other things remaining the same, more quantity of a commodity is
purchased at a lower price and less quantity is purchased at a higher price. In
other words, it states that there is an inverse relationship between the price
of a commodity and its demand.
8.
The law of demand
can be shown by a schedule and a curve. The demand curve slopes downward
from left to right. The demand curve is downward sloping because of the law of
diminishing marginal utility. In fact, the demand curve is essentially the
marginal utility curve.
9.
Demand for
commodity depends upon the price of related goods. Related goods are of two
types: substitute goods and complementary goods. An increase in the price of a
substitute good (say coffee) causes an increase in the demand for the commodity
(say tea) or a rightward shift of the demand curve while an increase in the
price of a complementary good (say petrol) causes a decrease in demand for the
commodity (say car) or a leftward shift of the demand curve.
10.
Demand for a
commodity is also affected by the income of the buyer (or consumer). As income
increases, the demand for a commodity increases or decreases, i.e., the demand
curve shifts to the right or left depending on whether the good is normal or
inferior. An increase in income causes a rightward shift of the demand curve
for a normal good while an increase in income causes a leftward shift of the
demand for an inferior good.
11.
Demand for a
commodity bears a direct relationship to the charge in tastes. A favorable taste change increases the demand for a commodity, i.e., shifts the demand
curve to the right while an unfavorable change decreases the demand for a
commodity, i.e., shifts the demand curve to the left.
12.
We can also
distinguish between ‘change in quantity demanded’ (movement along a demand
curve) and ‘change in demand’ (shift in demand curve). Change in quantity
demanded is associated with a charge in demand caused by a rise/fall in the
price of commodity. It is expressed in the form of an expansion in demand or
contraction in demand. Expansion and contraction in demand are represented
diagrammatically in the form of movement on the same demand curve. ‘change in
demand’ is associated with a change in demand for commodity caused by other factors
than the price of a commodity such as price of related goods, income of the
consumer, etc. it is expressed in the form of an increase or decrease in
demand. Change in demand is represented graphically by a rightward or a
leftward shift of the demand curve.
13.
Market demand
means the total quantity of a commodity that all its buyers are willing to
purchase at different prices over a given period of time. Market demand
schedule is obtained by adding up of the
individual demand schedules while market demand curve is obtained by
horizontally summing up of the individual demand curves.
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