Economics Project
Elementary Theory Of Demand
Samarth Kulkarni, X C
Elementary Theory Of Demand
Index :
1. Introduction to Elementary Theory
Of Demand
2. Meaning of demand- individual and
market demand
3. Factors affecting demand
4. Statement of law of demand
5. Bibliography and Acknowledgement
Introduction to Elementary Theory Of Demand
Demand means the specific quantity of a commodity or
service that a consumer is willing to buy at a given price and a
given time.
The elementary features of demand are:
1. Demand means always effective demand
2. Demand is always at a certain price.
3. Demand is a flow concept.
*Want will become demand when a person is ready to
purchase the specific quantity of the commodity at a
particular price.
Meaning of demand- individual and market demand
Demand:
Demand means the specific quantity of a commodity or service that a consumer is
willing to buy at a given price and at a given time. It is necessary to express the
quantity demanded with reference to price and time.
For ex- If we say that a household purchases 3 kgs of wheat per day @ 30 then 3 kgs
of wheat will be called the demand because it has all three essentials of demand,
namely quantity, price and time.
Individual Demand
An individual household is the basic decision maker regarding consumption of a
commodity or service. It takes decisions regarding what to buy and how much much to
buy. It shows the desired demand for a commodity at different possible prices.
Individual demand is determined by commodity’s own price, price of related goods,
income of the consumers.
Market Demand
Market demand refers to the total quantity of a commodity that all the consumers or
households are willing to buy in the market at a particular price during a specific
period. In addition to all factors that determine individual demand, market demand
also depends upon number of consumers, distribution of income, season and weather,
government policy,etc.
Factors Affecting Demand
1.Price of the Commodity
Other things being equal, demand for a
commodity increases when its price falls and
decreases when price rises.
2.Price of Related Goods
If a change in the price of one good affects
the demand for one another good, it is called
cross demand. We would say that these two
goods are related. Related goods may be in
the form of substitutes and complementary.
(a)Substitute goods:
Two goods are substitutes, if one can be used in place of
the other. These are also called competitive goods because
they compete with each other for demand in the market.
(b)Complementary goods:
Complementary goods are those goods which are used
together to satisfy a particular want, like tea, and sugar,
coke and caffeine, bread and butter etc. There is an inverse
relation between the price of a complementary good and
demand for the given good. An increase in price of a
complementary good leads to a decrease in the demand
for the given good and vice-versa.
3. Income of the Consumer
Other thing is being equal generally, there is a direct relationship between the
consumer’s income and the demand for a commodity. However the
effect of change in income of consumer’s demand depends upon the nature of
the commodity.
(a) Normal Goods: “Normal goods are those the demand for which increase in
income of the consumers”. For instance, a consumer increases his demand
for milk, clothes, furniture, refrigerator, and TV sets as his income increases.
(b) Inferior Goods: “The demand for which falls, as income of the consumer
increases.” There is an inverse relationship between income of the consumer
and the amount demanded of inferior goods. E.g. A consumer may buy
toned milk when his income is less because he cannot afford to buy pure
milk.
4. Tastes and Preferences:
The amount demanded of a commodity also depends on the
consumer tastes and preferences. When we begin to like
certain commodities there demand will increase.
5. Consumer credit facility:
If credit facilities are provided at low rate of interest, by the
banks or sellers of the commodity, households would be
encouraged to buy more than what they would buy in their
absence. For instance, demands for bikes would increase if
bike loans from banks are easily and cheaply available.
Similarly residential houses demand will increase if banks
provide home loans at a cheaper interest rate.
Statement of Law of Demand
The Law of Demand explains the inverse
relationship between the price and quantity
demanded of a certain commodity.
According to this law; other things being equal price
and quantity demanded of the commodity move in
opposite direction. In other words, when the price of
the commodity increases the demand falls, other
things constant.
Therefore, people demand a larger quantity of goods
and services at a lower price than at a higher price.
Acknowledgement
I would like to Thank my teacher for
assigning this project because it is important
to have knowledge about demand.
