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Demand concept of demand

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Tinku Kumar
Tinku Kumar

1) Demand refers to an effective desire for a commodity, backed by the ability and willingness to pay for it. Demand depends on factors like price, income, tastes, expectations about future prices, and advertising. 2) Individual demand refers to what one consumer will buy, while market demand is the total demand from all consumers. Market demand determines sales and prices. 3) Factors that influence demand include price, income, tastes, prices of substitutes and complements, expectations, advertising, number of consumers, and economic conditions.

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DEMAND CONCEPT OF DEMAND: Ordinarily by demand is meant the desire or want for something. In economics, however, demand means the effective desire or want for a commodity backed up by the ability and the willingness to pay for it. Thus , want for a commodity without possessing money to buy it or un willingness to pay a given price for it will not constitute a demand for that commodity. In short, Demand = Desire+ Ability to pay + Will to spend. 1) Demand is always related to price and time: Demand is a relative concept Demand for a commodity should always have a reference to price and time . Thus economists always mention the amount of demand for a commodity with reference to Price and specific time period, such as per day, per week, per month or per year. 2) Demand may be viewed ex-ante or ex-post: Ex-ante demand is the intended demand and ex-post demand is what is already purchased. The former denotes potential demand, while the latter refers to the actual magnitude purchased. 3) Demand may be direct or
derived: Consumer’s demand is a direct demand as it directly yields satisfaction to the consumer. Consumption goods have direct demand. Producer’s demand for factor-inputs is a derived demand as it is derived from the demand for the final output. All capital goods have derived demand. For example, the demand for a house for dwelling purpose is a direct demand, while the demands for bricks, cement, wood, architect, mason, carpenter, etc. that are required to build the house are derived demands. INDIVIDUAL DEMAND AND MARKET DEMAND: Consumer demand for a product may be viewed at two levels: 1] Individual demand 2] Market Demand
Individual demand refers to the demand for a commodity from the individual point of view. The quantity of a good that a consumer would buy at a given price during a given period of time is his individual demand for that particular Good. Individual demand is considered from one person’s point of view or from that of a family or household’s point of view. Market demand for a product on the other hand, refers to the total demand of all the buyers taken together. How much quantity the consumers in general would buy at a given price during a given period of time constitutes the total market demand for the product. Market demand is the sum total of individual demands. Aggregating all individual buyers’ demand in the market derives it. Market demand is more important from the sellers’ point of view. Sales depend on the market demand. Business policy and planning are based on the market demand. Prices are determined on the basis of market demand and not of just an individual demand for the product. In a competitive market,
interaction between total or market demand and market supply determine the equilibrium price. Usually under market mechanism, resources would be automatically channelized in producing those goods, which have a greater intensity of market demand and consequently, higher prices and more profitability. DETERMINANTS OF DEMAND Factors influencing Individual Demand: An individual’s demand for a commodity is generally determined by such factors as: 1] Price of the Product: Normally a larger quantity is demanded at a lower price than at a higher price. 2] Income: With increase in income one can buy more goods. Thus a rich consumer usually demands more and amore goods than a poor consumer. 3] Tastes and Habits: Demand for several products like ice-cream, chocolates, bhel-puri, etc depend on individual’s tastes. Demand for tea, betel, tobacco, etc, is a matter of habit. 4] Relative prices of other goods: Relative products such as substitutes and complementary goods also determine the demand
for a commodity. If substitutes are relatively costly, then there will be more demand for this commodity at a given price than in case of its substitutes are relatively cheaper. When in order to satisfy a given want, two or more goods are needed in combination, these goods are referred to as complementary goods. For e.g. car and petrol, pen and ink, tea and sugar, shoes and socks, etc are complementary to each other. When the price of one commodity decreases, the demand for its complementary product will tend to increase and vice versa. 5] Consumers Expectations: When a consumer expects its prices to fall in future, he will tend to buy less at the present prevailing price. Similarly, if he expects its price to rise in future, he will tend to buy more at present. 6] Advertisement Effect: In modern times, the preferences of a consumer can be altered by advertisement and sales propaganda although to a certain extent only. Factors influencing Market Demand: Market demand is the general demand
pattern of the community of the people at large. The following factors affect the common demand pattern for a commodity in the market. 1) Price of the product: At a low market price, market demand for the product tends to be high and vice versa. 2) Distribution of income and wealth in the community: If there is equal distribution of income and wealth, the market demand for many products of common consumption tends to be greater than in the case of unequal distribution. 3) Community’s Common Habits and Scale of Preferences: For e.g. When a large section of population shifts its preference fromvegetarian foods to non-vegetarian foods, the demand for the former will tend to decrease and that for the latter will increase. 4) General standards of Living and Spending Habits of the People: When people in general adopt a high standard of living and are ready to spend more, demand for many comforts and luxury items will tend to be higher than otherwise. 5) Number of Buyers in the Market and the Growth of Population:
The size of market demand for a product obviously depends on the number of buyers in the market. A large number of buyers will constitute a large demand and vice versa. 6) Age structure and sex- ratio of the Population: If there is large number of juvenile population then the market demand for toys, schools, etc i.e. goods and services required by children will be much higher than the market demand for goods needed by the elderly people. Similarly females exceeding males in number would mean a greater demand for goods required by the female population than the male population. 7) Future Expectations: If buyers in general expect that prices of a commodity will rise in future, present market demand would be more as most of them would like to hoard the commodity. The reverse happens if a fall in the future prices is expected. 8) Level of Taxation and Tax Structure: A progressively high tax rate would generally mean a low demand for goods in general and vice versa. But a highly taxed commodity will have a relatively lower
demand than an untaxed commodity- if that happens to be a remote substitute. 9) Inventions and Innovations: Introduction of new goods or substitutes as a result of inventions and innovations in a dynamic modern economy tends to adversely affect the demand for the existing products, which as a result of innovations, definitely become obsolete. 10)Fashions: For example e; demand for commodities like jeans, are based on current fashions. 11)Climate or weather conditions: For example: in summer, there is a greater demand for cold drinks, fans, coolers etc. Similarly, demand for umbrellas and raincoats are seasonal. 12) Customs: Fro example during Christmas there is more demand for gifts and cakes. 13) Advertisement and Sales Propaganda: Market demand for many products in the present day is influenced by the sellers’ efforts through advertisements and sales propaganda Demand is manipulated through selling efforts. 14) War
Period: As compared to the normal period, during war time, market demand for most goods tends to contract. This is because people become more patriotic and are willing to sacrifice more to permit diversion of resources from civilian use to the military sector for strengthening the defence programmes. The government may also borrow on a large scale to meet war expenditure. As a result, the purchasing power of the public decreases. Again, prices may also tend to rise on account of the increased war expenditure by the government. War-time inflation thus implies curtailment of overall demand for goods in general.

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Demand concept of demand

  • 1. DEMAND CONCEPT OF DEMAND: Ordinarily by demand is meant the desire or want for something. In economics, however, demand means the effective desire or want for a commodity backed up by the ability and the willingness to pay for it. Thus , want for a commodity without possessing money to buy it or un willingness to pay a given price for it will not constitute a demand for that commodity. In short, Demand = Desire+ Ability to pay + Will to spend. 1) Demand is always related to price and time: Demand is a relative concept Demand for a commodity should always have a reference to price and time . Thus economists always mention the amount of demand for a commodity with reference to Price and specific time period, such as per day, per week, per month or per year. 2) Demand may be viewed ex-ante or ex-post: Ex-ante demand is the intended demand and ex-post demand is what is already purchased. The former denotes potential demand, while the latter refers to the actual magnitude purchased. 3) Demand may be direct or
  • 2. derived: Consumer’s demand is a direct demand as it directly yields satisfaction to the consumer. Consumption goods have direct demand. Producer’s demand for factor-inputs is a derived demand as it is derived from the demand for the final output. All capital goods have derived demand. For example, the demand for a house for dwelling purpose is a direct demand, while the demands for bricks, cement, wood, architect, mason, carpenter, etc. that are required to build the house are derived demands. INDIVIDUAL DEMAND AND MARKET DEMAND: Consumer demand for a product may be viewed at two levels: 1] Individual demand 2] Market Demand
  • 3. Individual demand refers to the demand for a commodity from the individual point of view. The quantity of a good that a consumer would buy at a given price during a given period of time is his individual demand for that particular Good. Individual demand is considered from one person’s point of view or from that of a family or household’s point of view. Market demand for a product on the other hand, refers to the total demand of all the buyers taken together. How much quantity the consumers in general would buy at a given price during a given period of time constitutes the total market demand for the product. Market demand is the sum total of individual demands. Aggregating all individual buyers’ demand in the market derives it. Market demand is more important from the sellers’ point of view. Sales depend on the market demand. Business policy and planning are based on the market demand. Prices are determined on the basis of market demand and not of just an individual demand for the product. In a competitive market,
  • 4. interaction between total or market demand and market supply determine the equilibrium price. Usually under market mechanism, resources would be automatically channelized in producing those goods, which have a greater intensity of market demand and consequently, higher prices and more profitability. DETERMINANTS OF DEMAND Factors influencing Individual Demand: An individual’s demand for a commodity is generally determined by such factors as: 1] Price of the Product: Normally a larger quantity is demanded at a lower price than at a higher price. 2] Income: With increase in income one can buy more goods. Thus a rich consumer usually demands more and amore goods than a poor consumer. 3] Tastes and Habits: Demand for several products like ice-cream, chocolates, bhel-puri, etc depend on individual’s tastes. Demand for tea, betel, tobacco, etc, is a matter of habit. 4] Relative prices of other goods: Relative products such as substitutes and complementary goods also determine the demand
  • 5. for a commodity. If substitutes are relatively costly, then there will be more demand for this commodity at a given price than in case of its substitutes are relatively cheaper. When in order to satisfy a given want, two or more goods are needed in combination, these goods are referred to as complementary goods. For e.g. car and petrol, pen and ink, tea and sugar, shoes and socks, etc are complementary to each other. When the price of one commodity decreases, the demand for its complementary product will tend to increase and vice versa. 5] Consumers Expectations: When a consumer expects its prices to fall in future, he will tend to buy less at the present prevailing price. Similarly, if he expects its price to rise in future, he will tend to buy more at present. 6] Advertisement Effect: In modern times, the preferences of a consumer can be altered by advertisement and sales propaganda although to a certain extent only. Factors influencing Market Demand: Market demand is the general demand
  • 6. pattern of the community of the people at large. The following factors affect the common demand pattern for a commodity in the market. 1) Price of the product: At a low market price, market demand for the product tends to be high and vice versa. 2) Distribution of income and wealth in the community: If there is equal distribution of income and wealth, the market demand for many products of common consumption tends to be greater than in the case of unequal distribution. 3) Community’s Common Habits and Scale of Preferences: For e.g. When a large section of population shifts its preference fromvegetarian foods to non-vegetarian foods, the demand for the former will tend to decrease and that for the latter will increase. 4) General standards of Living and Spending Habits of the People: When people in general adopt a high standard of living and are ready to spend more, demand for many comforts and luxury items will tend to be higher than otherwise. 5) Number of Buyers in the Market and the Growth of Population:
  • 7. The size of market demand for a product obviously depends on the number of buyers in the market. A large number of buyers will constitute a large demand and vice versa. 6) Age structure and sex- ratio of the Population: If there is large number of juvenile population then the market demand for toys, schools, etc i.e. goods and services required by children will be much higher than the market demand for goods needed by the elderly people. Similarly females exceeding males in number would mean a greater demand for goods required by the female population than the male population. 7) Future Expectations: If buyers in general expect that prices of a commodity will rise in future, present market demand would be more as most of them would like to hoard the commodity. The reverse happens if a fall in the future prices is expected. 8) Level of Taxation and Tax Structure: A progressively high tax rate would generally mean a low demand for goods in general and vice versa. But a highly taxed commodity will have a relatively lower
  • 8. demand than an untaxed commodity- if that happens to be a remote substitute. 9) Inventions and Innovations: Introduction of new goods or substitutes as a result of inventions and innovations in a dynamic modern economy tends to adversely affect the demand for the existing products, which as a result of innovations, definitely become obsolete. 10)Fashions: For example e; demand for commodities like jeans, are based on current fashions. 11)Climate or weather conditions: For example: in summer, there is a greater demand for cold drinks, fans, coolers etc. Similarly, demand for umbrellas and raincoats are seasonal. 12) Customs: Fro example during Christmas there is more demand for gifts and cakes. 13) Advertisement and Sales Propaganda: Market demand for many products in the present day is influenced by the sellers’ efforts through advertisements and sales propaganda Demand is manipulated through selling efforts. 14) War
  • 9. Period: As compared to the normal period, during war time, market demand for most goods tends to contract. This is because people become more patriotic and are willing to sacrifice more to permit diversion of resources from civilian use to the military sector for strengthening the defence programmes. The government may also borrow on a large scale to meet war expenditure. As a result, the purchasing power of the public decreases. Again, prices may also tend to rise on account of the increased war expenditure by the government. War-time inflation thus implies curtailment of overall demand for goods in general.