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Fundamental principles of costing

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What is Demand ?



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.


Also read:
Introduction to Micro-economics
What is Consumer's equilibrium 

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