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QUICK
1. Demand: Quantity of a commodity that a consumers is able and willing to purchase in a given period at a
given price.
2. Features of Demand:
(i) Demand is an effective desire. The desire for a commodity will be effective only when it is backed by
purchasing power and willingness to spend.
(ii) Demand is always related to quantity, price and time.
(iii) Demand for a commodity depends on its utility.
3. Demand Schedule. It is a tabular representation which shows the relationship between price of the
commodity and quantity purchased.
4. Demand Curve: It is a graphical representation of demand schedule.
5. Individual Demand and Market Demand: Individual demand is the demand of just one consumer, while
market demand is the total demand for a product from all its consumers.
6. Determinants of Demand:
(i) Factors Influencing Individual Demand:
(a) Price of the commodity
(b) Price of related goods
(c) Income of the consumer
(d) Tastes and preferences
(e) Future expectation
(ii) Factors Influencing Market Demand:
(a) Population
(b) Season and weather
(c) Government policy
(d) State of business
(e) Distribution of income
7. Law of Demand: Statement: The law of demand states that other things remaining the same, people will
demand lesser quantity of goods at higher price and more quantity of goods at lower prices.
Assumptions: Ceteris paribus, e.g., (other things remaining constant):
(i) Income of the consumer should remain constant.
(ii) Price of related goods should remain constant.
(iii) No change in taste and preferences of the consumers.
(iv) No change in credit policy etc.
Causes of Operation: Followings are the reasons for the operation of law of demand (downward sloping demand
curve).
(i)Law of diminishing marginal utility
(ii) Income effect
(iii) Substitution effect
(iv) New customers
(v) Deferent uses of the commodity
Demand Function: Functional relationship between demand and its determinants is known as demand
function. Dx = f(Px, Pr, Y ..... n)
,Exceptions; Some of the important exceptions to the law of demand are as follows: (Demand curve slopes
upward)
(i) Inferior goods
(ii) Articles of display
(iii) Future expectations regarding change in price
(iv) Ignorance on the part of consumers about quality
(v) Emergencies
(vi) Giffen goods
(vii) Quality price relationship
(vi) Habits
8. Normal Good: A normal good is one whose demand increases with increase in income.
9. Inferior Good: An inferior good is one, the demand for which tends to fall with an increase in the income of
the consumer.
10. Giffen Goods: Giffen goods are those inferior goods on which the consumer spends a large part of his
income. Their demand falls with fall in their prices.
11. Substitute Goods: Substitute goods are those goods which can be used in place of each other for the
satisfaction of same type of wants. For example, tea and coffee.
12. Complementary Goods: Complementary goods refer to those goods which are jointly used to satisfy a
particular want. For example, pen and ink.
13. Movements of the Demand:
(I) Change in Quantity Demanded: Quantity demanded of a commodity depends on its own price and other
factors like prices of related goods, income and tastes of the consumers, etc. remains same. A change in the
price causes a movement (upward or downward) along the same demand curve. Such a movement is called
change in the quantity demanded. It is of following two types:
(i) Expansion of Demand: More demand at a lower price
(ii) Contraction of Demand: Less demand at a higher price.
(II) Change in Demand: Demand changes due to change in factor other than price of the commodity, are of
two types:
(A) Increase in Demand: More demand due to change in other factors, price remaining constant. Causes of
increases in demand are:
(i) Increase in income.
(ii) Favourable changes in taste and preferences.
(iii) Rise in price of substitute goods.
(iv) Fall in price of complementary goods.
(B) Decrease in Demand: Less demand due to change in other factors price remaining constant. Causes of
decrease in demand are:
(i) Decrease in income.
(ii) Unfavourable changes in tastes and preferences.
(iii) Decrease in price of substitute goods.
(iv) Rise in price of complementary goods.
14. Income Effect: It refers to change in quantity demanded of a commodity when real income of the
consumer changes as a result of change in commodity's own price.
15. Substitution Effect: It refers to change in quantity demanded of a commodity when relative price of a
commodity changes due to change in its price.
16. Price Effect: It refers to change in quantity demanded of a commodity due to change in its price. Price
effect=Income effect + Substitution effect.
17. Cross Price Effect. It refer to the effect of change in price of one good on demand of another good, other
things remaining same.
, 1 MARK QUESTIONS
A. FILL IN THE BLANKS
1. The sum total of both the substitution and income effect is called the _______.
2. If a fall in the price of one good raise the demand for another good, the two goods are called _______.
3. If demand for a commodity rises even without any change in its price, then it is known as_______.
4. In case of_______ goods, demand rises with increase in income.
5. _______ shows the tabular presentation of various quantities of a commodity a consumer is willing to buy
at different prices, during a given period.
6. M law of demand states the _______ relationship between price and quantity demanded.
7. Market demand curve is obtained by_______ summation of the individual demand curves.
8. Ceteris paribus means _______.
9. Change in quantity demanded due to change in real income is known as _______.
10. Substituting one commodity for the other when it becomes relatively cheaper is _______.
11. Keeping all other things constant when quantity demanded changes with the change in income is known
as _______.
12. Demand curve will be upward sloping if there is a _______ as it is measured over a period of time relation
between demand and its determinants.
13. Demand is a _______.
14. Demand is an_______ desire.
15. The functional relationship between demand and its determinants is known as _______.
ANSWERS
1. Price effect 2. Complementary 3. Increase in 4. Normal goods 5. Demand
goods demand schedule
6. Functional 7. Horizontal 8. Keeping all other 9. Income effect 10. Substitution
summation factors constant effect.
11. Income 12. Direct 13. Flow 14. Effective 15. Demand
demand function
B. TRUE OR FALSE
1. Demand means quantity of a commodity which a consumer is ready to buy.
Ans. [False] Because demand refers to quantity of a commodity which a consumer is ready to buy at different
prices in a given period of time.
2. With fall in income, demand for normal good will rise but for an inferior good will fall.
Ans. [False] Because with fall in income, demand for a normal good generally falls and that for an inferior
good rises.
3. Law of demand states that price and demand are directly related to each other.
Ans. [False] As according to law of demand price and demand are inversely related to each other.
4. Law of demand explains quantitative relationship between price and demand.
QUICK
1. Demand: Quantity of a commodity that a consumers is able and willing to purchase in a given period at a
given price.
2. Features of Demand:
(i) Demand is an effective desire. The desire for a commodity will be effective only when it is backed by
purchasing power and willingness to spend.
(ii) Demand is always related to quantity, price and time.
(iii) Demand for a commodity depends on its utility.
3. Demand Schedule. It is a tabular representation which shows the relationship between price of the
commodity and quantity purchased.
4. Demand Curve: It is a graphical representation of demand schedule.
5. Individual Demand and Market Demand: Individual demand is the demand of just one consumer, while
market demand is the total demand for a product from all its consumers.
6. Determinants of Demand:
(i) Factors Influencing Individual Demand:
(a) Price of the commodity
(b) Price of related goods
(c) Income of the consumer
(d) Tastes and preferences
(e) Future expectation
(ii) Factors Influencing Market Demand:
(a) Population
(b) Season and weather
(c) Government policy
(d) State of business
(e) Distribution of income
7. Law of Demand: Statement: The law of demand states that other things remaining the same, people will
demand lesser quantity of goods at higher price and more quantity of goods at lower prices.
Assumptions: Ceteris paribus, e.g., (other things remaining constant):
(i) Income of the consumer should remain constant.
(ii) Price of related goods should remain constant.
(iii) No change in taste and preferences of the consumers.
(iv) No change in credit policy etc.
Causes of Operation: Followings are the reasons for the operation of law of demand (downward sloping demand
curve).
(i)Law of diminishing marginal utility
(ii) Income effect
(iii) Substitution effect
(iv) New customers
(v) Deferent uses of the commodity
Demand Function: Functional relationship between demand and its determinants is known as demand
function. Dx = f(Px, Pr, Y ..... n)
,Exceptions; Some of the important exceptions to the law of demand are as follows: (Demand curve slopes
upward)
(i) Inferior goods
(ii) Articles of display
(iii) Future expectations regarding change in price
(iv) Ignorance on the part of consumers about quality
(v) Emergencies
(vi) Giffen goods
(vii) Quality price relationship
(vi) Habits
8. Normal Good: A normal good is one whose demand increases with increase in income.
9. Inferior Good: An inferior good is one, the demand for which tends to fall with an increase in the income of
the consumer.
10. Giffen Goods: Giffen goods are those inferior goods on which the consumer spends a large part of his
income. Their demand falls with fall in their prices.
11. Substitute Goods: Substitute goods are those goods which can be used in place of each other for the
satisfaction of same type of wants. For example, tea and coffee.
12. Complementary Goods: Complementary goods refer to those goods which are jointly used to satisfy a
particular want. For example, pen and ink.
13. Movements of the Demand:
(I) Change in Quantity Demanded: Quantity demanded of a commodity depends on its own price and other
factors like prices of related goods, income and tastes of the consumers, etc. remains same. A change in the
price causes a movement (upward or downward) along the same demand curve. Such a movement is called
change in the quantity demanded. It is of following two types:
(i) Expansion of Demand: More demand at a lower price
(ii) Contraction of Demand: Less demand at a higher price.
(II) Change in Demand: Demand changes due to change in factor other than price of the commodity, are of
two types:
(A) Increase in Demand: More demand due to change in other factors, price remaining constant. Causes of
increases in demand are:
(i) Increase in income.
(ii) Favourable changes in taste and preferences.
(iii) Rise in price of substitute goods.
(iv) Fall in price of complementary goods.
(B) Decrease in Demand: Less demand due to change in other factors price remaining constant. Causes of
decrease in demand are:
(i) Decrease in income.
(ii) Unfavourable changes in tastes and preferences.
(iii) Decrease in price of substitute goods.
(iv) Rise in price of complementary goods.
14. Income Effect: It refers to change in quantity demanded of a commodity when real income of the
consumer changes as a result of change in commodity's own price.
15. Substitution Effect: It refers to change in quantity demanded of a commodity when relative price of a
commodity changes due to change in its price.
16. Price Effect: It refers to change in quantity demanded of a commodity due to change in its price. Price
effect=Income effect + Substitution effect.
17. Cross Price Effect. It refer to the effect of change in price of one good on demand of another good, other
things remaining same.
, 1 MARK QUESTIONS
A. FILL IN THE BLANKS
1. The sum total of both the substitution and income effect is called the _______.
2. If a fall in the price of one good raise the demand for another good, the two goods are called _______.
3. If demand for a commodity rises even without any change in its price, then it is known as_______.
4. In case of_______ goods, demand rises with increase in income.
5. _______ shows the tabular presentation of various quantities of a commodity a consumer is willing to buy
at different prices, during a given period.
6. M law of demand states the _______ relationship between price and quantity demanded.
7. Market demand curve is obtained by_______ summation of the individual demand curves.
8. Ceteris paribus means _______.
9. Change in quantity demanded due to change in real income is known as _______.
10. Substituting one commodity for the other when it becomes relatively cheaper is _______.
11. Keeping all other things constant when quantity demanded changes with the change in income is known
as _______.
12. Demand curve will be upward sloping if there is a _______ as it is measured over a period of time relation
between demand and its determinants.
13. Demand is a _______.
14. Demand is an_______ desire.
15. The functional relationship between demand and its determinants is known as _______.
ANSWERS
1. Price effect 2. Complementary 3. Increase in 4. Normal goods 5. Demand
goods demand schedule
6. Functional 7. Horizontal 8. Keeping all other 9. Income effect 10. Substitution
summation factors constant effect.
11. Income 12. Direct 13. Flow 14. Effective 15. Demand
demand function
B. TRUE OR FALSE
1. Demand means quantity of a commodity which a consumer is ready to buy.
Ans. [False] Because demand refers to quantity of a commodity which a consumer is ready to buy at different
prices in a given period of time.
2. With fall in income, demand for normal good will rise but for an inferior good will fall.
Ans. [False] Because with fall in income, demand for a normal good generally falls and that for an inferior
good rises.
3. Law of demand states that price and demand are directly related to each other.
Ans. [False] As according to law of demand price and demand are inversely related to each other.
4. Law of demand explains quantitative relationship between price and demand.
