DEMAND

 In this post the concept of demand is discussed. Demand is the quantity of a commodity or a service that consumer are willing and able to buy at various prices over a given period of time.It refer to a consumer's desire and willingness to pay a price for a specific good or service.So the definition of demand highlight four essential elements of demand -

1) Quantity of commodity 2)Willingness to buy 3)Price of a commodity 4)Period of time.

Determinants of Demand(Individual Demand)

1. Price of the Given Commodity:

It is the most important factor affecting demand for the given commodity. Generally, there exists an inverse relationship between price and quantity demanded. It means, as price increases, quantity demanded falls due to decrease in the satisfaction level of consumers.For example, If price of given commodity (say, tea) increases, its quantity demanded will fall as satisfaction derived from tea will fall due to rise in its price.Demand (D) is a function of price (P) and can be expressed as: D = f (P). The inverse relationship between price and demand, known as ‘Law of Demand’.

2. Price of Related Goods:

Demand for the given commodity is also affected by change in prices of the related goods. Related goods are of two types:

(i) Substitute Goods:

Substitute goods are those goods which can be used in place of one another for satisfaction of a particular want, like tea and coffee. An increase in the price of substitute leads to an increase in the demand for given commodity and vice-versa. For example, if price of a substitute good (say, coffee) increases, then demand for given commodity (say, tea) will rise as tea will become relatively cheaper in comparison to coffee. So, demand for a given commodity is directly affected by change in price of substitute goods.Example are:

1. Tea and Coffee 2. Coke and Pepsi 3. Pen and Pencil 4. CD and DVD 5. Ink pen and Ball Pen 6. Rice and Wheat

(ii) Complementary Goods:

Complementary goods are those goods which are used together to satisfy a particular want, like tea and sugar. An increase in the price of complementary good leads to a decrease in the demand for given commodity and vice-versa. For example, if price of a complementary good (say, sugar) increases, then demand for given commodity (say, tea) will fall as it will be relatively costlier to use both the goods together. So, demand for a given commodity is inversely affected by change in price of complementary goods.Examples are:1. Tea and Sugar 2. Pen and Ink 3. Car and Petrol 4. Bread and Butter 5. Pen and Refill 6. Brick and Cement.

3. Income of the Consumer:

Demand for a commodity is also affected by income of the consumer. However, the effect of change in income on demand depends on the nature of the commodity under consideration.

i.) If the given commodity is a normal good, then an increase in income leads to rise in its demand, while a decrease in income reduces the demand.

ii.) If the given commodity is an inferior good, then an increase in income reduces the demand, while a decrease in income leads to rise in demand.Example:Suppose, income of a consumer increases. As a result, the consumer reduces consumption of toned milk and increases consumption of full cream milk. In this case, ‘Toned Milk’ is an inferior good for the consumer and ‘Full Cream Milk’ is a normal good. 

4. Tastes and Preferences:

Tastes and preferences of the consumer directly influence the demand for a commodity. They include changes in fashion, customs, habits, etc. If a commodity is in fashion or is preferred by the consumers, then demand for such a commodity rises. On the other hand, demand for a commodity falls, if the consumers have no taste for that commodity.

5. Expectation of Change in the Price in Future:

If the price of a certain commodity is expected to increase in near future, then people will buy more of that commodity than what they normally buy. There exists a direct relationship between expectation of change in the prices in future and change in demand in the current period. For example, if the price of petrol is expected to rise in future, its present demand will increase.

Determinants of Market Demand

1)Distribution of National Income: 

The national income is one of the basic determinants of the market demand for a product, such as the higher the national income, the higher the demand for all the normal goods. Apart from its level, the distribution pattern of the national income also determines the overall demand for a product. Such as, if the national income is unevenly distributed, i.e., the majority of the population falls under the low-income groups, then the market demand for the inferior goods will be more than the other category goods

2)Population of the Country: 

The population of the country also determines the total domestic demand for a product of mass consumption. For a given level of per capita income, tastes and preferences, price, income, etc., the larger the size of the population the larger the demand for a product and vice-versa

3) Season and Weather :

The seasonal and weather conditions also affect the market demand for a commodity.For example, during winter demand for woollen clothes and jacket increases whereas market demand for raincoat and umbrellas increases during rainy season.