This document discusses the demand function and its key components. It begins by defining demand and explaining the relationship between demand, price, and quantity exchanged in a market. It then outlines the main types of demand curves, including price, income, cross, joint, and composite demand. The core concept of the law of demand and its characteristics are explained. The document lists some exceptions to the law of demand and provides an example demand schedule and curve. It identifies the main determinants of demand as price, income, prices of substitutes and complements, tastes, and expectations. Finally, it distinguishes between a movement along the demand curve caused by a price change versus a shift of the entire demand curve caused by changes in other factors.
2. RD COMMERCE CLASSES
CONTENT
MEANING OF DEMAND
TYPES OF DEMAND
LAW OF DEMAND
DETERMINANTS OF DEMAND
CHANGE IN QUANTITY DEMAND AND
CHANGE IN DEMAND
3. RD COMMERCE CLASSES
MEANING OF DEMAND
Demand refers to consumers' desire to purchase goods
and services at given prices.
Demand can mean either market demand for a specific
good or aggregate demand for the total of all goods in an
economy.
Demand, along with supply, determines the actual prices
of goods and the volume of goods that changes hands in a
market.
4. RD COMMERCE CLASSES
TYPES OF DEMAND
1. Price demand:
Price demand refers to the different quantities of the commodity or service which consumers
will purchase at a given time and at given prices, assuming other things remaining the same.
It is the price demand with which people are mostly concerned and as such price demand is
an important notion in economics. Price demand has inverse relation with the price
2. Income demand:
Income demand refers to the different quantities of a commodity or service which consumers
will buy at different levels of income, assuming other things remaining constant. Usually the
demand for a commodity increases as the income of a person increases unless the
commodity happens to be an inferior product
5. RD COMMERCE CLASSES
3. Cross demand:
When the demand for a commodity depends not on its price but on the price of other
related commodities, it is called cross demand. Here we take closely connected or related
goods which are substitutes for one another.
4. Joint demand:
In finished products as in case of bread, there is need for so many things—the services of
the flour mill, oven, fuel, etc. The demand for them is called joint demand
5. Composite demand:
A commodity is said to have a composite demand when its use is made in more than one
purpose. For example the demand for coal is composite demand as coal has many uses—
as fuel for a boiler of a factory, for domestic fuel, for oven for steam-making in railways
6. RD COMMERCE CLASSES
LAW OF DEMAND
THE LAW OF DEMAND STATES
THAT OTHER THINGS
BEING EQUAL , THE DEMAND OF
GOOD EXTENDS WITH A FALL IN
PRICE, AND CONTRACTS WITH A
RISE IN PRICE
7. RD COMMERCE CLASSES
CHARACTERISTICS OF LAW OF DEMAND
INVERSE RELATIONSHIP :Inverse relationship between
the price and the quantity demanded. This is shown by the
downward sloping demand curve.
DEPENDENT AND INDEPENDENT VARIABLE :Price is an
independent variable and the demand is dependent. It is
the effect of price on demand and not vice versa.
8. RD COMMERCE CLASSES
EXCEPTIONS OF LAW OF DEMAND
ARTICLE OF DISTINCTION OR VEBLEN GOODS : ALL THE LUXURY
GOODS ARE MORE DEMAND IF THEIR PRICES ARE HIGH . SUCH AS DIMONDS
ARE MORE DEMAND WHEN THEIR PRICES ARE HIGH.
Ignorance: Many a times consumer judges the quality of a
good from its price. Such consumers may purchase high price
goods because of the feeling of possessing a better quality.
Giffen Goods: It is a special type of inferior goods where the fall
in the price results into the decrease in the quantity demanded.
9. RD COMMERCE CLASSES
Price (in $) Quantity demanded (in units)
4 40
3 70
2 90
1 100
Demand Schedule and Demand Curve
10. RD COMMERCE CLASSES
DETERMINANTS OF DEMAND
The five determinants of demand are:
The price of the good or service.
Income of buyers.
Prices of related goods or services. These are either complementary,
those purchased along with a particular good or service, or substitutes,
those purchased instead of a certain good or service.
Tastes or preferences of consumers.
Expectations. These are usually about whether the price will go up.
11. RD COMMERCE CLASSES
CHANGE IN QUANTITY DEMAND AND CHANGE IN DEMAND
OR
MOVEMENT ALONG THE DEMAND CURVE AND SHIFT IN DEMAND
CURVE
Movement of the Demand Curve
When there is a change in the quantity demanded of a particular commodity, because
of a change in price, with other factors remaining constant, there is a movement of
the quantity demanded along the same curve.
The important aspect to remember is that other factors like the consumer’s income
and tastes along with the prices of other goods, etc. remain constant and only the
price of the commodity changes.
12. RD COMMERCE CLASSES
We know that if all other factors remain constant, then an increase in the price of a
commodity decreases its demand. Also, a decrease in the price increases the demand. So,
what happens to the demand curve?
13. RD COMMERCE CLASSES
The shift of the Demand Curve
When there is a change in the quantity demanded of a
particular commodity, at each possible price, due to a
change in one or more other factors, the demand curve
shifts. The important aspect to remember is that other
factors like the consumer’s income and tastes along with
the prices of other goods, etc., which were expected to
remain constant, changed.