Meaning of demand: The term demand refers to the quantity of goods or services that the buyers are willing or able to purchase at various prices during a given period of time.

The Important keywords to understand demand which need to be fulfilled cumulatively I.E. all conditions need to be satisfied.

Definition of demand: According to Benham “The demand for anything at a given price, is the amount of it which will be bought per unit of time at that price.”

Let us understand How to express demand? 

The 3 points to be considered while expressing demand are as follows:

Amount ( Price), Quantity & Period.

Important points to be noted: 

• Quantity demanded is always expressed at a given price. ( in our eg. is RS. 11,000 to RS. 20,000/-)
• At different prices, different quantities demanded. ( in our eg. is 1,00, 000 units)
• Quantity demanded is a flow, i.e., it is a continuous flow of purchases for a time period. ( which in our Ex. is the year 2021).
• Isolated purchase will not be considered as a flow.

Interpretation: By demand we mean the various quantities of a given commodity or service which consumers would buy in one market during a given period of time, at various:

Determinants of demand:  now that we have understood the meaning of demand. Now the question that arises in mind is: What are the factors that influence demand for a commodity? I.E how and for whom do we determine demand?

We determine demand either for an individual or for the market. Consider the below distinction:

Other common factors:

Let us understand these points in detail:

• Price of commodity: ceteris paribus I.E other things being equal the price of a commodity is inversely related to its price . I.E.

Price: increases  Demand: decreases

• Price of related commodities: It is important for us to first understand what are related commodities?

Related commodities can be classified under two types:

1. Complementary goods
2. Competing or substitute goods

Definition of complementary goods: “those goods which are used or consumed together ”.

Examples: Pen and ink

Car and petrol 

Relationship with price:

Pen price: ↑ then, demand for ink: ↓,  price of car: ↑  demand for petrol:↓ i.e., inverse relationship.

Definition of Competing or substitute goods: “Satisfy same wants and can be used in place of one another”.

For example: Pepsi and Coca-Cola

Price : pepsi: increases demand : Coca-Cola : increases

I.E there is a direct relationship between price and demand.

• Disposable income of the consumer: Generally as income: increases,  demand: increases. But the relationship between income and demand depends on the nature of goods.  Let us understand the nature of goods and their relationship with price. 

1. Normal goods: Are those goods that are demanded in higher quantities  as the    income increases and vice-versa. Most goods and services fall under this category. 

                   For example:

2. Inferior goods: these are goods for which quantity demanded in high quantities  up to a certain level and after that it decreases.  Ex. say your salary is RS. 10,000/- per month. So you purchase cheap rice, say for EG. kolam rice. Now you get a promotion and your income increases and the price for kolam rice reduces, still you will shift to basmati rice as now it is within your purchasing power even at a higher price.
3. Essential goods: food grains, fuel, cooking oil which satisfy the necessities of life and  are consumed by individuals in a society. As income changes, demand will change. Increase in demand will be less  than proportionate to change in its income. As income increases,  people will switch more to durable goods such as TV, fridge, etc.
4. Luxury and prestigious goods: demand increases  beyond a certain level of income and keeps on increasing  as income increases. 

• Taste and preferences of buyers: also play an important role in determining demand. Goods which are modern, in fashion command higher prices as compared to goods which are out of fashion. Sometimes even external effects  such as demonstration effect, bandwagon effect, snob effect and Veblen effects play a significant role in determining demand. Let us consider each one of these points:

• Demonstration effect: refers to the desire of people to emulate the consumption behavior of others. Sometimes people see the latest phone with their friend, and they just want it.
• Bandwagon effect: desire of people to buy commodities to be: stylish, fashionable or conform to the people to whom they wish to be associated with.
• Snob effect: the demand for consumer goods decreases when it becomes common. The reason being the desire of people to be exclusive, different, disassociate themselves from the common herd.
• Veblen’s effect: highly priced goods purchased by status seeking rich people to satisfy their need for conspicuous consumption.

Note: conspicuous consumption means purchase of goods or services for the specific purposes of displaying one’s wealth.

Interpretation: knowledge regarding taste and preferences is extremely valuable for the manufactures and marketers as it would help them in appropriately designing  new models of products and services and plan production to suit the changing tastes and needs of customers.

• Consumer’s expectations: consumer expectations regarding future income, future prices influence demand. If they expect: prices will rise, demand will increase and vice-versa. If they expect income will rise, demand will rise.
• Level of national income and its distribution: higher  the national income, higher will be the demand. If the income distributed unequally, then the propensity to consume of the country as a whole  will be less  and there will be less   demand for consumer goods. On the other hand, if the income  distributed equally, then the propensity to consume of the entire country will be higher and there will be higher demand for goods.

Note: Propensity to consume, in economics, the proportion of total income or of an increase in income that consumers tend to spend on goods and services rather than to save.

• Consumer credit facilities and interest rates: induces people to purchase more than what their current income permits. For Ex. I need the latest laptop, but my current salary does not permit me. But the credit facility is available, then I will be included to buy. Generally, credit facilities taken for durable goods and goods which require bulk payment at the time of purchase. Lower interest rates encourage people to borrow more and hence, the demand for goods increases.
• Govt’s policies and regulations:

•    Other factors: the demand for a commodity depends upon the following other factors:
• Size of population:

The larger the population, the greater  would be the demand for commodities at any price. Opposite would be the case when the population is less.

• Age group of population:

• Migration of labor:  In case of migration from rural to urban areas then demand in rural areas will decrease and  urban areas will increase.

• Other common factors:

To be continued……………