Demand and market demand, Demand Schedule, Demand Curve Demand function, The law of demand slope of demand

1. Demand: Individual Demand and MarketDemand
What is Demand? Not, what you wish to have! What you wish to have is simply your
wishful thinking or desire. Demand is what you wish to buy against a particular price. It is
the desire to buy a commodity (or a particular amount of a commodity) at its particular
price, at a point of time.
Demand refers to the desire to buy a particular commodity (or its particular amount/quantity)
against a particular price, at a point of time.
Important thing to remember is that demand for a commodity cannot be discussed
independent of price of the commodity.
Ask your mother: How much of fruit (say apples) she wishes to buy? Pat should come the
reply: It depends on the price of apples. Higher the price of the commodity, lower the
purchase of the commodity. It is a standard relationship between price and purchase, on
the assumption that other things (other than price and purchase of the commodity) do not
change.
A Standard Relation between Price and Purchase

2. It is that higher the price, lower the purchase of the commodity on the assumption that other
things do not change
Individual Demand
It refers to demand for a commodity by an individual buyer in the market. ?Ram buying
10 shirts at a price of Rs. 500 per shirt? is an example of individual demand.
Market Demand
It refers to total demand for a commodity by all the buyers in the market. If Ram and
Shyam are the only two buyers in the market, and both of them are buying 25 shirts at a
price of (say) Rs. 500 per shirt, market demand would be: 25 shirts at a price of Rs. 500 per
shirt. Or it could be 30 shirts at a price of (say) Rs. 400 per shirt, and so on.
Note: Both in case of individual demand and market demand, the inverse relationship
between price and purchase holds goods. In fact, buying more at a lower price and buying
less at a higher price is a phenomenon related to human psychology. We shall discuss more
about it in the subsequent sections.
Determinants of Demand
 Price of the Commodity: Price, of course, is the prime determinant of demand for a
commodity. Higher the price, lower the purchase? operates like a law in the market.
Often this relationship is referred to as the, Law of Purchase or Law of Demand.
But there are other determinants of demand as well, as under:
 Income of the Consumer: Higher the income (implying purchasing power), higher
the purchase.
 Tastes and Preferences: A South Indian buys more rice while a North Indian buys
more wheat. Why? Because of the difference in tastes and preferences.
 Price of the Related Commodity: Demand for a commodity also depends on price of
the related commodity. It is called Cross-Price-Effect.
Cross Price Effect
It refers to effect of a change in price of one commodity on the demand for the other
commodity.
Example: If price of diesel decreases, it is very likely that the demand for petrol also decreases.
Some people may shift from petrol cars to diesel Cars. Implying a fall in demand for petrol
when price of diesel has fallen, even when price of petrol continues to be the same

3.  Market Expectations: Expectations about the market include (a) behavior of price
in the near future and (b) availability of commodity in the near future. If a curfew is
clamped in an area (like in the city of Jammu these days) owing to social unrest,
people expect prices of essential goods to increase; also they expect overall shortage
of these goods owing to problems of transportation. Consequently, the tendency
would be to buy more of essential goods at their existing price. People will like to
store these goods for use in the near future.
 Credit Facility: Credit facility through bank loans and credit cards has emerged to
be an important determinant of demand, particularly of consumer durables like
Cars, TVs, Televisions, etc. A check on credit (during inflation) tends to lower
demand while liberal availability of credit (during deflation) tends to raise it.
 Population Size: China and Indian are the emerging demand centres for consumer
goods. Why? Simply because of their population size. Demand expands when
population expands. However, population size as a determinant of demand, is to be
considered only in the context of market demand. This, determinant of demand is
Not Valid in the context of individual demand.
 Size and Distribution of Income: This is yet another determinant of market demand
only. When national income of a country increases, market demand tends to rise
and vice versa. Likewise, if distribution of income is skewed (or unequal) and a
large number of people in the country are below poverty line, market demand for
luxury goods (big cars or LCD TVs) is likely to be low. However, the students are
advised not to consider this determinant in the context of individual demand.
A caution
Price of the commodity, consumer’s income, market expectations, price of the related
commodity and credit facility are the five principal determinants of individual demand or
consumer’s demand.
Size and distribution of income and size of population are to be considered as determinants
of demand only with reference to market demand.
When you are listing the determinants of market demand, state the following:
(i) Price of the commodity
(ii) Price of the related commodity,
(iii) Size and distribution of income
(iv) Population size
(v) Credit facility

4. (vi) Market expectations
(vii) Tastes and Preferences.
When you are listing the determinants of individual demand state the following:
(i) Price of the commodity
(ii) Price of the related commodity,
(iii) Consumer’s income
(iv) Market expectations
(v) Tastes and Preferences
(vi) Credit facility
Demand Schedule and Demand Curve
Considerany normal good/commodity, say Good-X. Ask anybody the
following question:
What is your demand for Good-X?
Depends upon price is the standard reply you are going to get. Lowerthe
price, higher the purchase is the standard expressionof demand. Thus,
demand for a commodity is invariably expressedin terms of a schedule
showing inverse relationship betweenprice and purchase of a commodity. It is
like the following:
Table 1. Individual Demand Schedule
PX (Rs.) QX (Units)
Individual Demand Schedule is a table showing
different amounts of a commodity that an individual
consumer is ready to buy corresponding to different
possible prices of that commodity, at a point of time.
10
9
8
7
100
120
140
160

5. 6
5
180
200
Individual Demand Curve
Demand curve is a graphic presentation of demand schedule, showing an
inverse relationship betweenprice and quantity demanded of a commodity.
Fig. 1.
Note:Demand curve, as in Fig. 1, generallyslopes downward. Its downward
slope points to the inverse relationship betweenprice of commodity and
purchase of a commodity.
Market Demand Schedule
We know market demand refers to demand for a commodity by all the buyers
in the market. Accordingly, market demand schedule is a table showing
different amounts of a commodity that all the buyers in the market are ready
to buy corresponding to different possible prices of that commodity. Table 2 is
an example of market demand schedule.

6. Table 2. Market Demand Schedule
Price(Rs.)
Quantity
Demanded by A
Quantity
Demanded by B
Market
Demand
←
Market demand
schedule refers to
a table showing
different amounts
of a commodity that
all buyers in the
market are ready to
buy
corresponding
different possible
prices of that
commodity, at a point
of time.
6 0 5 5
5 5 10 15
4 10 15 25
3 15 20 35
2 20 25 45
1 25 30 55
Market Demand Curve
Market demand curve is simply a graphic presentation of market demand schedule,
showing an inverse relationship between price and market demand of a commodity. Fig.
2 is an example of market demand curve.
Fig. 2
Important
(a) Check carefully. You will find that market demand curve is a horizontal summation
(also called lateral summation) of individual demand curves.

7. (b) Because, market demand curve is a horizontal summation of individual demand curves,
it is flatter than any individual demand curve.
(c) Like individual demand curve, market demand slopes downward, showing an inverse
relationship between price and purchase of a commodity.
Difference between Demand and Quantity Demanded
It is time now to understand the difference between the terms ?demand? and ?quantity
demanded?.
We have understand that demand for a commodity generally finds expression of a schedule
showing higher purchase corresponding to a lower price. Thus, your demand for chocolate
may take the following expression:
Demand
Demand often
finds an expression
of a schedule
showing different
quantities of a
commodity that
the
consumer is ready
to buy
corresponding to
different possible
prices of that
commodity.
→
Price of
Chocolate
(per unit)
(Rs.)
Purchase of
Chocolate
(units)
←
Quantity Demanded
It refers to a specific quantity
that the consumer is ready to
buy against a specific price of
a
commodity. Thus, 5 units
against a price of Rs. 10 is
quantity
purchased/demanded.
10 5
9 7
8 10
With reference to your demand for Chocolate, you are stating that if price be Rs. 10 per
unit, you are buying only 5 units; if the price is Rs. 9, you are ready to buy 7 units, and if
the price is Rs. 8, you are ready to buy as many as 10 units of Chocolate. Thus, your
demand for Chocolate is as expressed in the entire demand schedule. Accordingly, you may
define demand in the following words:
Demand for a commodity refers to a schedule showing different amounts of a commodity
that the consumer is ready to buy corresponding to different possible prices of that
commodity.

8. Quantity purchased on the other hand, refers to a specific amount of a commodity (like 5
units) to be purchased against a specific price (Rs. 10)
With reference to demand curve, we can say that any specific point on the demand curve
shows Quantity demanded, while the entire demand curve shows demand for a commodity.
Movements along and Shifts in Demand Curve
Fig. 3
Referto Fig. 3. Moving from point a to b to c to d are the movements along the demand
curve. Moving from a to b, from b to c, from c to d shows:
(a) higher purchase in response to lower price.
(b) inverse relationship between price and purchase of a commodity.
(c) downward slope of demand curve.
Thus, movement along the demand curve may be defined as:
a situation of change in quantity (Qx) in response to change in price (Px) of a commodity
implying an inverse relationship between price and purchase or a situation of downward
sloping demand curve.
A Necessary Assumption
Moving along the demand curve, (or studying the inverse relation between price and
purchase of a commodity) we assume that other things remain constant. What are these
other things? These are other determinants of demand, other than price of the concerned
commodity. You know what the other determinants are. These are: (i) price of the related

9. good, (ii) consumer’s income (iii) consumer’s tastes and preferences, (iv) market
expectations, and (v) credit facility.
Keeping in mind this assumption, we may briefly, define movement along the demand
curve in the following words, placed in the block.
Movement Along the Demand Curve
It refers to a situation of change in quantity (Qx) in response to change in price (Px) of a
commodity, on the assumption that other determinants of demand (other than Px ) remain
constant.
A Necessary Caution
Inverse relationship between price and purchase of a commodity is established only on the
assumption that other determinants of demand (other than Px) remain constant. Hence,
movement along the demand curve (showing inverse relationship between price and
purchase of a commodity) must be studied on the assumption that other determinants of
demand remain constant.
Shift in Demand Curve
Fig. 4

10. Referto Fig. 4. Consider a situation that initially you were at point a. Now there is no
change in price of the commodity. It continues to be = OP. But you are moving from
point a to b or from point a to c.
What it could be due to? It could be due to change in any of the determinants of demand,
other than Px. To illustrate, while you are at point a, and Px is constant, your income may
increase. Consequently, you are buying more of X (OQ3 instead of OQ1), and you are
shifting from point a on dx1 to point c on dx3. It is a situation of forward shift in demand
curve. Your income may decrease as well. Consequently, you may buy less of X even
when Px is the same: you are buying OQ2 instead of OQ1. You are shifting from
point a on dx1, to point b on dx2. It is a situation of backward shift in demand curve.
Thus, a shift in demand curve occurs when demand for a commodity changes (increases or
decreases) owing to change in other determinants of demand, other than price of the
concerned commodity(Px).
A Shift in Demand Curve
A shift in demand curve is a situation when demand for a commodity (Qx) increases or
decreases owing to change in other determinants of demand, other than price of the
concerned commodity (Px).
Forward Shift in Demand Curve
It is a situation when demand for
commodity (Qx) increases, evenwhen price
of the commodity (Px) remains constant,
owing to change in other determinants of
demand, other than (Px).
Example: Income of the consumer
increases. Consequently (Qx) increases even
when (Px) is constant.
Backward Shift in Demand Curve
It is a situation when demand for a
commodity (Qx) decreases, evenwhen price
of the commodity (Px) remains constant,
owing to change in other determinants of
demand, other than (Px).
Example: Income of the consumer decreases.
Consequently (Qx) decreases even
when (Px)is constant.

11. Fig. 5
Fig. 6
Impact of Px on Qx: Law of Demand
Other things remaining constant, increase in Px causes a cut in Qx and decrease in Pxcauses
a rise in Qx.
The inverse relationship between Px and Qx is generalized as the law of demand.
Law of Demand
Law of demand states that, other things remaining constant, quantity demanded
(Qx) tends to rise when price of the commodity (Px) falls, and vice versa.
Movements along the Demand Curve explain the Law of Demand

12. Fig. 7
Referto Fig. 7. Moving along the demand curve (dx) we are moving from point b to a or
from point b to c. Moving from b to ashows: rise in Px from P2 to P3, and fall in Qx from
Q2 to Q1
Likewise, moving from point b to c shows: fall in Px from P2 to P1 and rise in Qx from Q2 to
Q3 Thus, moving along the demand curve (upward or downward), we find inverse
relationship between Px and Qx. This is what law of demand states.
Assumptions of the Law of Demand
A demand curve is drawn on the assumption that other determinants of demand (other
than Px) remain constant. These are therefore the assumptions of law of demand:
(a) that prices of related goods do not change.
(b) that consumer’s income is constant.
(c) that there is no change in consumer’s tastes and preferences.
(d) that there is no change in market expectations.
(e) that there is no change in credit facility to the consumer.
Exceptions to Law of Demand
Despite the above stated assumptions, there are situations when the law of demand fails.
Important ones are as under:
1. When a Consumer Judges Quality of a Commodity by its Price: It is not very
uncommon when we find ourselves in a dilemma of costlier the better. We feel that a
thing of high price is a thing of better quality. Accordingly, one tends to buy more of
a thing at its high price. Accordingly, the law of demand fails.
2. Articles of Snob Appeal: Articles like antique pieces of art are purchased simply
because their prices are very high. These articles carry a snob-appeal. These are
articles of social distinction. Law of demand fails in case of such articles.
3. Giffen Goods: These are not normal goods. These are highly inferior. So inferior
that a fall in their price causes a cut in their demand. Accordingly, law of demand
fails.
Impact of Income on Demand

13. If our income rises, we generally tend to buy more of goods. More income would mean
more pens, more shirts, more shoes, more cars, and so on. But there are exceptions. If
initially you are buying coarse grain (simply because you can’t afford to buy a finer grain),
how would you take your increase in income now? Perhaps, as a first step, you would
discard the consumption of inferiors: you will reduce (or give up) the consumption of
coarse grains and shift to the consumption of superior grains. Surely, this happens in the
deserts of Rajasthan where, the rich minority eats wheat while the poor majority eats bajra
as their staple food. This prompts us to divide goods as:
(a) normal goods and (b) inferior goods. Details are as under:
(a) Normal Goods: These are the goods the demand for which increases as income of the
buyers rises. Thus, there is a positive relationship between income and demand. It is called
positive income effect.
How Demand Curve of a Normal Good changes when Income of the buyers changes?
In a situation of increase in income, more of a (normal) good is purchased even when its
price is constant. This refers to a situation of increase in demand or forward shift in
demand curve. On the other hand, in a situation of decrease in income, less of a (normal)
good is purchased even when its price is constant. This refers to a situation of decrease in
demand or backward shift in demand curve.
Diagram (Fig. 8) illustrates these situations:
Fig. 8
(b) Inferior Goods: These are the goods the demand for which decreases as income of
buyers rises. Thus, there is negative relationship between income and demand. It is called
negative income effect.

14. How Demand Curve of an Inferior Good changes when Income of the buyers changes?
In a situation of increase in income, less of the (inferior) good is purchased. The consumer
prefers to shift on to superior substitutes, because now he can afford them.
Buying less of a commodity at its existing price implies a backward shift in demand curve,
or decrease in demand. On the other hand, if income decreases, the consumer, already
consuming an inferior good, is further compelled to depend on it. May be he has to further
cut his consumption of superior substitute and buy more of the inferior goods. It implies a
situation of forward shift in demand curve or increase in demand for inferior goods.
Diagram (Fig. 9) illustrates these situations:
Fig. 9
Impact of Prices of Related Goods on Demand: Cross Price Effect
Effect of change in price of a related good on the demand for a commodity is called cross
price effect.
We know related goods are:
(a) substitute goods and
(b) complementary goods. Accordingly, we can split our discussion into two parts, as
under:
(i) Demand for a Commodity in relation to Price of the Substitute Goods: Let us consider
tea and coffee as two substitute goods. Let tea be the commodity demanded of which
demand curve is as shown in Fig. 10.

15. Fig. 10
(1) Increase in Price of Substitute Goods: Referto Fig. 10, if price of tea is OP1, quantity
purchased is OT1 Now, suppose the price of tea remains constant but the price of coffee
increases. How would you react as a consumer?
As a rational consumer, you may decide to substitute some tea in place of coffee. Or, you
are expected to buy more of tea evenwhen its price is constant. This is reflected in Fig. 11.
Fig. 11
Initially you were buying OT1 quantity of tea = P1K1 Now you are willing to buy OT2 =
P1K2evenwhen price of tea remains constant at OP1 . Greater purchase of a commodity at
its constant price points to a situation of increase in demand, or forward shift in demand
curve. Accordingly, demand curve for tea shifts to the right, from D1 to D2.
(2) Decrease inPrice of Substitute Goods: If price of coffee decreases, you will tend to
substitute some coffee in place of tea. Or, you will demand less tea evenwhen its price is
constant. Fig. 12 illustrates this situation: Initially you were buying OT1 of tea (=

16. P1K1) Now, you are buying OT2(= P1K2)of tea evenwhen price of tea is constantOP1 , but
because price of substitute (coffee) has reduced. This is a situation of backward shift in
demand curve.
Fig. 12
If X and Y are substitutes and price of X remains constant:
– demand curve for X would shift to the right if price of Y increases.
– demand curve for X would shift to the left if price of Y decreases.
(ii) Demand for a Commodity in Relation to Price of the Complementary Goods: Let us
consider car and petrol as complementary goods. Let cars be the commodity demanded of
which the demand curve is as shown in Fig. 13.

17. Fig. 13
(1) Increase in Price of Complementary Goods: Now consider change in the price of
complementary good. Referto Fig. 14. If price of cars (say Maruti-800) is OP1, number of
cars purchased is OT1. Now, suppose this price remains constant but the price of petrol
increases.
Fig. 14
How would the consumers react to such a situation? They would tend to buy less cars, even
when price of the cars is constant. Following diagram shows this situation:
Referto Fig. 14. Initially, OT1(= P1K1) cars were purchased. Now, evenwhen price of cars
is constant, OT2(= P1K2) cars are purchased, because price of petrol has increased. This is a

18. situation of decrease in demand or backward shift in demand curve. Accordingly, demand
curve shifts from D1 to D2
(2) Decrease inPrice of Complementary Goods: If price of petrol decreases, people will
have the tendency to buy more cars, evenwhen price of cars is constant. This is a situation
of increase in demand, or forward shift in demand curve, as in Fig. 15.
Fig. 15
If X and Y are complementary goods and price of X remains constant:
demand curve for X would shift forward if price of Y reduces.
demand curve for X would shift backward if price of Y increases.
Referto Fig. 15. Initially OT1(= P1K1) cars were purchased. As price of petrol decreases,
T1T2(= K1K2) more cars are purchased evenwhen price of cars is constant. Accordingly,
demand curve shifts forward from D1 to D2
Briefly, this is what we have studied in this section.
If X is the commodity in demand, Y is the substitute good and Z is the complementary
good:
Forward shift in demand curve when price of the substitute good rises.

19. Backward shift in demand curve when price of the substitute good decreases.
Backward shift in demand curve when price of the complementary good rises.
Forward shift in demand curve when price of the complementary good decreases.
Notations:
Dx : Demand for X; Px : Price of X
PY : Price of Y; PZ : Price of Z
Change in Demand vs Change in Quantity Demanded
The terms, change in quantity demanded refers to expansion or
contraction of demand, while change in demand means increase or
decrease in demand.
Differences between a change in demand and a change in quantity demanded are given
below : Change in demand means change in demand due to the factors of demand other
than price whereas Change in quantity demanded means change in the quantity purchased
due to change in the price of a product .
1. Expansion and Contraction of Demand:
The variations in the quantities demanded of a product with change in its price, while other
factors are at constant, are termed as expansion or contraction of demand. Expansion of
demand refers to the period when quantity demanded is more because of the fall in prices
of a product. However, contraction of demand takes place when the quantity demanded is
less due to rise in the price o a product.
For example, consumers would reduce the consumption of milk in case the prices of milk
increases and vice versa. Expansion and contraction are represented by the movement
along the same demand curve. Movement from one point to another in a downward
direction shows the expansion of demand, while an upward movement demonstrates the
contraction of demand.

20. Figure-11 demonstrates the expansion and contraction of demand:
2. Increase and Decrease in Demand:
Increase and decrease in demand are referred to change in demand due to changes in
various other factors such as change in income, distribution of income, change in
consumer’s tastes and preferences, change in the price of related goods, while Price factor
is kept constant Increase in demand refers to the rise in demand of a product at a given
price.
On the other hand, decrease in demand refers to the fall in demand of a product at a given price. For
example, essential goods, such as salt would be consumed in equal quantity, irrespective of increase
or decrease in its price.Therefore, increase in demand implies that there is an increase in demand for
a product at any price.Similarly,decrease in demandcan also be referredas same quantity demanded
at lower price, as the quantity demanded at higher price.
Increase and decrease in demand is represented as the shift in demand curve. In the graphical
representation of demand curve, the shifting of demand is demonstrated as the movement from one
demand curve to another demand curve. In case of increase in demand, the demand curve shifts to
right, while in case of decrease in demand, it shifts to left of the original demand curve.