Made for ISC level

2. MEANING OF DEMAND
demand is an
effective desire,
i.e.
a desire + the will
to purchase +
power to
purchase.
always expressed
in relation to a
particular price.
always expressed
with reference to
a particular time
period.

3. Types of Demand
Individual
Demand
and
Market
Demand
Ex-ante
and Ex-
post
Demand
Joint
Demand
Derived
Demand
Composite
Demand /
Rival
Demand

4. Individual Demand vs Market Demand
The demand for a commodity by a single
consumer is known as individual's demand. Or
a household's demand.
The sum total of demand by all the
households or individuals is known as market
demand.
Market demand refers to the total quantity of
a commodity that all the households are
prepared to buy at a given price during a
specified period of time.

5. Determinants of demand
Price of the commodity
Income of the consumer (i) normal goods, (ii) inferior
goods, (iii) inexpensive necessities of life.)
Consumers' tastes and preferences
Prices of related goods ((i) substitute or competitive
goods and (ii) complementary goods.)
Consumers' expectations
Consumer-credit facility
Size and composition of population
Distribution of income
Government policy

6. (i) Normal goods- Normal goods are those goods the demand
for which increases with increase in income of the consumers
and decreases with fall in income.
(ii) Inferior goods- Inferior goods are those goods the demand
for which falls with increase in income of the consumer.
(iii) Inexpensive goods of necessities- In case of inexpensive
necessities of life such as salt and match-box, quantity
purchased increases with increase in income up to a certain
level and remains constant irrespective of the level of income.
Income of the consumer

7. Y
X
O
Y1
Q1
Y2
IN
Q2
INCOME
QUANTITY
IG

8. Substitute goods-
Substitute goods are
those goods which
satisfy the same type
of demand and hence
can be used in place
of one another, such
as tea and coffee.
There is a direct
relationship between
the demand for· a
product (say tea), and
the price of its'
substitute (say
coffee).

9. Complementary goods
Complementary goods are those
goods which are complementary to
one another in the sense that they are
used jointly or consumed together,
like car and petrol, gas and gas
stoves. There is an inverse
relationship between the demand for
a good and the price of its
complement.

10. Princeofcoffee
Princeofpetrol
Demand for tea Demand for cars
Y Y
OO X X
L
R
K
H

11. Cross demand or Cross price effect
The way demand for one particular
product is affected by a change in the
price of another product is known as the
cross demand or cross price effect.
The cross demand shows the functional
relation between the price of a
commodity and demand for some other
related commodity.

12. Demand function
 Dx Demand for commodity x
 F shows functional relation between?
 Px Price of commodity x
 PX-1 Price of all other commodities
 Y Income of the consumer
 T Tastes and preferences of consumer
 E Expectations of future prices
 H Size of population
 y Distribution of income
 G Government’s policy
It states the relationship between the demand for a product and its determinants.
Dx = f(Px…PX-1, Y, T,E,H,y,G…)

13. Law of demand
The law of demand shows
a functional relationship
between price and
quantity demanded of a
commodity.

14. “that other things
remaining equal, the
quantity demanded of
a commodity
increases when its
price falls and
decreases when its
price rises.”
It indicates an inverse
relationship between
the price and quantity
demanded of a
commodity.
With a rise in price
demand will fall and
with a fall in price
demand will rise.
Statement of the Law

15. Assumptions (other things remaining equal…)
There should be no change in the income of the
consumer.
There should be no change in the tastes and
preferences of the consumers.
Prices of the related commodities should remain
unchanged.
Size of population should not change.
The distribution of income should not change.
The commodity should be a normal commodity.

16. Demand Schedule
It is a table that shows different
quantities of a commodity that would
be demanded at different prices.

17. (1) individual demand schedule
Individual demand
schedule is the table
which shows various
quantities of a
commodity that would
be purchased at
different prices by a
household.
Price
(Rs. Per
kg.)
Qty.
Demanded
(kg per
week)
30 1
25 2
20 4
15 6

18. (2) Market demand schedule
Market demand schedule is a table which shows
various quantities of a commodity that all the buyers
(consumers) will purchase at different prices during a
given period.
It is composed of the demand schedules of all
individuals purchasing that commodity.
It can be obtained by adding up the quantities
purchased at different prices by all the households in
the market.

19. Market Demand schdule
Price
Rs. per kg.
Demand by
‘A’
Demand by
‘B’
Market
Demand
30 1 2
25 2 3
20 4 5
15 6 7

20. Demand curve is a graphic presentation of the law of demand.
It is derived plotting various price-quantity combinations
graphically.
The picturization of demand schedule is called the 'demand curve'.
It is the curve showing different quantities demanded at various
alternative prices during a given period.
The demand curve is drawn on the assumption of ceteris paribus
order.
Demand Curve and derivation of demand curve

21. Types of demand curve:
• It is the curve that shows
different quantities of the this
good which a consumer is
willing to buy at different prices
during a given period of time.
Individual
demand curve:
• It is a curve that represents
different quantities of goods
which all the consumers in the
market are willing to buy at
different prices during a
specified period.
• It is the horizontal summation
of the demand curves of all the
households.
Market
demand curve

22. Why Does the Demand Curve Slope Downwards to the Right?
• Marginal utility
of the
commodity falls
with an increase
in its
consumption. A
consumer will
maximise his
satisfaction
when Marginal
utility of a
commodity =
Price of the
commodity.
Law of
diminishing
marginal utility
• A change in
demand on
account of
change in real
income resulting
from change in
the price of a
commodity is
known as income
effect
Income Effect
• The effect that a
change in
relative prices of
substitute goods
has on the
quantity
demanded.
Substitution
Effect
1 2 3

23. Why Does the Demand Curve Slope Downwards to the Right?
• A fall in the price
of a commodity
leads to an
increase in
quantity
demanded by the
existing
consumers due to
income and
substitution
effects.
Increase in
number of
consumers
• When the prices of
such commodities
are very high, they
can be used for
more important
purposes only a
small quantity will
be in demand.
• But when the price
falls, the commodity
will be put to less
important uses also,
leading to an
increase in demand.
Several uses of
a commodity
4 5

24. We may observe that more
quantity of a commodity is
demanded at a higher
price, and less of it is
demanded a lower price. In
these situations, ,the
inverse relationship
between price and the
amount purchased does
not hold good.
These are known as
exceptions to the law of
demand in such situations,
demand curve may not
have a negative slope; it
may slope upward showing
positive relation.
Exceptions to the Law of Demand

25. Exceptions to the Law of Demand
• They are those inferior goods
on which the consumer spends
a large part of his income and
the demand for it falls with a
fall in their price.
Giffen goods
• Commodities which serve as
'status symbol', increase social
prestige or are a source of
display of wealth and richness.
Veblen has termed these goods
as 'conspicuous consumption'.
Articles of
snob appeal
• When the consumers
anticipate a large fall in the
price of a commodity in future,
they will postpone their
purchase even if price falls
today so as to purchase this
commodity at a still lower
price in future.
Expectation
regarding
future prices:
• During emergencies like war,
famines, etc. consumer behave
in an abnormal way. If they
expect shortage of goods, they
would buy and hoard goods
even at high prices. During
depression they will buy less
even at low prices
Emergencies
• Consumers take price as an
index of quality.
Quality-price
relationship

26. Movement along the demand curve
When the amount demanded changes (rises- or falls) as a
result of change in its own price, while other
determinants of demand (like income, tastes and prices
of related goods) remain constant, it is known as
 Change in Quantity Demanded
 Movement along the Demand Curve
 It may be of two types:
 Extension of demand
 Contraction of demand.
Y
X
P2
P1
Q3 Q1
QUANTITY
PRICE
O Q2
P3
A2
A1
A3
D
D

27. Extension of demand
When the quantity demanded of a
commodity rises due to fall in its
price, other things remaining the
same, it is called 'rise in quantity
demanded' or 'extension of demand'.
It is known as a movement down or
downward movement in a demand
curve

28. Contraction of demand
When the quantity demanded of
a commodity falls due to rise in
its price, other things remaining
the same, it is called ‘fall in
quantity demanded' or
‘contraction of demand'.
It is known as a movement up
the demand curve or upward
movement in a demand curve

29. Increase in demand
It refers to a situation when the consumers buy a
larger amount of the commodity at the same price
due to change in 'other factors'.
It leads to shift of the demand curve to the right .
Also known as rightward shift of the demand
curve

30. Decrease in demand
It refers to a situation when the consumers buy a
smaller amount of the commodity at the same
price due to change in other factors.
It results in shift in demand curve to the left.
Also known as leftward shift of the demand curve

31. Alternative individual demand schedule for Apples
Price
(Rs. per kg.)
Qty. Demanded
(Income
Rs.8000/-)
Qty. Demanded
(Income
Rs.10,000/-)
30 1 2
25 2 3
20 4 5
15 6 7

32. Y
X
P
Q1 Q2
QUANTITY
PRICE
O Q3
A2A3 A1
D3
D2
D1

33. Factors which causes change in demand
Increase in demand
Increase in income
Rise in the price of substitute
goods
Fall in the price of
complementary goods
Favourable change in tastes and
preferences
Expectation of rise in price
Increase in population
Decrease in demand
Decrease in income
Fall in the price of substitute goods
Rise in the price of complementary
goods
Unavourable change in tastes and
preferences
Expectation of fall in price
Decrease in papulation

34. Distinction between Extension of Demand and
Increase in Demand
Extension of
demand refers to
the larger quantity
being purchased
due to fall in the
price of a
commodity, while
increase in demand
refers to more
being purchased at
the same price.
Extension of
demand is due to
fall in a
commodity's own
price, increase in
demand is due to
change in 'other
factors' affecting
demand.
Extension of
demand simply
involves a
downward
movement along
the same demand
curve, but increase
in demand results
in rightward shift of
the entire demand
curve .

35. Distinction between
Contraction of Demand and Decrease in Demand
Contraction of
demand means a fall
in the amount
purchased due to
rise in a
commodity's own
price; decrease in
demand means
smaller amount
being purchased at
the same price.
Contraction of
demand is due to a
rise in a
commodity's own
price; decrease in
demand is due to
changes in 'other
factors' affecting
demand.
Contraction of
demand simply
means upward
movement along the
same demand curve,
but decrease in
demand results in
the leftward shift of
the entire demand
curve.

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