Hello everyone, in the previous topic we were discussing a Case study on Dr. A.P.J Abdul Kalam. Today we are going to talk about What is Demand, its types, and factors affecting demand.

What is Demand?

Demand

Demand refers to the willingness or effective desire of individuals to buy a product supported by their purchasing power. Here effective desire is the quantity of a commodity or service that is purchased at a given time period at a given price from the market.

The three terms demand, want, and desire is often used interchangeably. However, in business economics, each of these terms has a different meaning. Let’s understand the difference between these three terms with the help of an example.

Example- Suppose an individual is willing to purchase a personal computer for their work, it becomes their desire. If the individual has purchasing power to buy the computer but is not willing to sacrifice their money, it becomes a want.

However, if the individual is willing to use the money to purchase the computer, it becomes a demand.

These points should be considered while defining the term demand-

• The quantity to be purchased
•  The price at which the commodity is to be purchased
• The time period when the commodity is purchased

Types of Demand

Following are the types of demand-

Price Demand

It is a demand for different quantities of a commodity or service that consumers intend to purchase at a given price and time period assuming other factors, such as prices of the related goods, level of income of consumers, and consumer preferences, remain unchanged.

Price demand is inversely proportional to the price of a commodity or service. As the price of a commodity or service rises, its demand falls and vice versa. Therefore, price demand indicates the functional relationship between the price of a commodity or service and the quantity demanded.

 It can be mathematically explained as-

DA = f (PA) where,

DA = Demand for commodity A

f = Function

PA =Price of commodity A

Income Demand

It is a demand for different quantities of a commodity or service that consumers intend to purchase at different levels of income assuming other factors remain the same.

Generally, the demand for a commodity or service increases with an increase in the level of income of individuals except for inferior goods. Therefore, demand and income are directly proportional to normal goods whereas demand and income are inversely proportional to inferior goods. The relationship between demand and income can be mathematically expressed as-

DA = f (YA), where,

DA = Demand for commodity A

f = Function

YA = Income of consumer A

Cross Demand

It refers to the demand for different quantities of a commodity or service whose demand depends not only on its own price but also on the price of other related commodities or services.

For example, jio and airtel are two companies. Thus, when the price of jio increases, people will switch to airtel. Consequently, the demand for airtel increases. Thus, it can be said that jio and airtel have cross demand.

Mathematically, this can be explained as-

DA = f (PB), where,

DA = Demand for commodity A

f = Function

PB = Price of commodity B

Individual Demand and Market Demand

This is the classification of demand based on the number of consumers in the market.

Individual demand refers to the quantity of a commodity or service demanded by an individual consumer at a given price at a given time period.

Joint Demand

It is the quantity demanded of two or more commodities or services that are used jointly and are, thus demanded together.

For example, car and petrol, bread and butter, etc. are commodities that are used jointly and are demanded together. The demand for such commodities changes proportionately. The rise in the demand for cars results in a proportionate rise in the demand for petrol. However, in the case of joint demand, a rise in the price of one commodity results in the fall of demand for the other commodity.

Like the increase in the price of cars will cause a fall in the demand of not only of cars but also for petrol.

Composite Demand

It is the demand for commodities or services that have multiple uses.

For example, the demand for steel is a result of its use for various purposes like making utensils, car bodies, pipes, cans, etc. In the case of commodity demand, a change in price results in a large change in demand. This is because the demand for the commodity or service would change across its various usages.

Like if the price of steel increases, the price of other products made of steel also increases.

Direct and Derived Demand

Direct demand is the demand for commodities or services meant for final consumption. This demand arises out of the natural desire of an individual to consume a particular product.

For example, the demand for food, shelter, clothes, and vehicles is direct demand as it arises out of the biological, physical, and other personal needs of consumers.

On the other hand, Derived demand refers to the demand for a product that arises due to the demand for other products.

For example, the demand for cotton to produce cotton fabrics is derived from the demand. Derived demand is applicable for manufacturers’ goods, such as raw materials, intermediate goods, or machines and equipment.

Apart from this, the factors of production (land, labor, capital, and enterprise) also have derived demand. For example, the demand for labor in the construction of buildings is a derived demand.

Factors Affecting Demand

Following are the factors affecting demand-

Price of the Product

There is an inverse or we can say negative relationship between the price of a product and the amount of that product consumers are willing and able to buy.

The Consumer’s Income

The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we’re talking about. For most goods, there is a positive or direct relationship between a consumer’s income and the number of goods that one is willing and able to buy. In other words, for these goods when income raises the demand for the product will increase; when income falls, the demand for the product will decrease.

The Tastes and Preferences of Consumers

This is a less tangible item but can have a big impact on demand. There are all kinds of things that can change one’s tastes or preferences that cause people to want to buy more or less of a product.

For example, if a famous celebrity endorses a new product, this may increase the demand for that product. On the other hand, if a new health study comes out saying something is bad for your health, this may decrease the demand for that product.

Number of Consumers in the Market

As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers are willing and able to buy.

For example, a burger shop that opens near a University will have more demand and thus higher sales during the semesters. In

the vacations, when fewer students are taking classes, the demand for their product will decrease because the number of consumers in the area has significantly decreased.

So, that is all for today guys see you in our next blog. If you like our article please don’t forget to share with others & follow our Instagram page for your daily dose of Motivation.

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