CHP 2 DEMAND AND LAW OF DEMAND
Demand for a commodity refers to the quantities of a commodity that people are willing and able to purchase at various
possible prices during a particular time period.
ELEMENTS OF DEMAND:
Demand and desire are two different things. Desire is wishful thinking. Demand is an effective desire i.e. desire backed by the
willingness and ability to pay.
Demand is always at a price. It makes no sense if it is not related to a price. Demand is always expressed in relation to a price.
Demand is always expressed with reference to a particular time period. Flow is any variable which is expressed per unit of time.
Demand does not refer to a single isolated purchase, but to a continuous flow of purchases.
TYPES OF DEMAND:
Individual Demand and Market Demand- Individual demand refers to the quantities of a commodity that an individual is willing
and able to purchase at various prices during a given time period. Market demand refers to the total quantities of a commodity
that all the households are willing and able to purchase at various prices during a given period of time. (Example)
Ex Ante and Ex Post Demand- Ex ante demand refers to the quantities of a commodity that consumers want to or willing to buy
during a particular time period. It is the planned or desired amount of demand. Ex post demand refers to the amount of goods
that the consumers actually purchase during a specific period. It is the amount of goods actually bought. The amount of goods
actually bought is not the same amount that the consumers want to purchase. Consumers may end up buying more or lesser
quantity that they had planned to buy.
Joint Demand- The demand for two or more goods which are used jointly or demanded together. In case of joint demand, the
rise in the price of one good results in the decrease in demand for the other good and vice versa.
Derived Demand- The demand for a commodity that arises because of the demand for some other commodity. It generally
relates to the demand for factors of production. It is derived from the demand for the goods produced by these factors of
production.
Composite Demand- Demand for goods that have multiple uses. In this case, a rise in the price of such a commodity would result
in a large change in its demand because its demand for all the uses will change. Moreover, an increase in the demand for the
product in one use, decreases its availability for another use.
DETERMINANTS OF DEMAND
1. Price of Commodity
2. Income of Consumers
3. Prices of Related Goods
4. Consumer Tastes and Preferences
5. Government Policy
6. Climatic Changes
7. Consumer Expectations
8. Consumer Credit Facilities
9. Demonstration Effect- It refers to the tendency of a person to emulate the consumption style of other persons such as his
friends, neighbours, etc.
10. Size and Composition of Population
11. Distribution of Income
DEMAND FUNCTION
A demand function states the relationship between the demand for a product and its various determinants.
Dn = f (Pn, P1…Pn-1, Y, T, E, H, Y, G…)
LAW OF DEMAND
Demand for a commodity refers to the quantities of a commodity that people are willing and able to purchase at various
possible prices during a particular time period.
ELEMENTS OF DEMAND:
Demand and desire are two different things. Desire is wishful thinking. Demand is an effective desire i.e. desire backed by the
willingness and ability to pay.
Demand is always at a price. It makes no sense if it is not related to a price. Demand is always expressed in relation to a price.
Demand is always expressed with reference to a particular time period. Flow is any variable which is expressed per unit of time.
Demand does not refer to a single isolated purchase, but to a continuous flow of purchases.
TYPES OF DEMAND:
Individual Demand and Market Demand- Individual demand refers to the quantities of a commodity that an individual is willing
and able to purchase at various prices during a given time period. Market demand refers to the total quantities of a commodity
that all the households are willing and able to purchase at various prices during a given period of time. (Example)
Ex Ante and Ex Post Demand- Ex ante demand refers to the quantities of a commodity that consumers want to or willing to buy
during a particular time period. It is the planned or desired amount of demand. Ex post demand refers to the amount of goods
that the consumers actually purchase during a specific period. It is the amount of goods actually bought. The amount of goods
actually bought is not the same amount that the consumers want to purchase. Consumers may end up buying more or lesser
quantity that they had planned to buy.
Joint Demand- The demand for two or more goods which are used jointly or demanded together. In case of joint demand, the
rise in the price of one good results in the decrease in demand for the other good and vice versa.
Derived Demand- The demand for a commodity that arises because of the demand for some other commodity. It generally
relates to the demand for factors of production. It is derived from the demand for the goods produced by these factors of
production.
Composite Demand- Demand for goods that have multiple uses. In this case, a rise in the price of such a commodity would result
in a large change in its demand because its demand for all the uses will change. Moreover, an increase in the demand for the
product in one use, decreases its availability for another use.
DETERMINANTS OF DEMAND
1. Price of Commodity
2. Income of Consumers
3. Prices of Related Goods
4. Consumer Tastes and Preferences
5. Government Policy
6. Climatic Changes
7. Consumer Expectations
8. Consumer Credit Facilities
9. Demonstration Effect- It refers to the tendency of a person to emulate the consumption style of other persons such as his
friends, neighbours, etc.
10. Size and Composition of Population
11. Distribution of Income
DEMAND FUNCTION
A demand function states the relationship between the demand for a product and its various determinants.
Dn = f (Pn, P1…Pn-1, Y, T, E, H, Y, G…)
LAW OF DEMAND
