Meaning of demand:-
Demand means the ability and willingness to buy a specific quantity of a commodity at the prevailing price in a given period of time. Therefore, demand for a commodity implies the desire to acquire it, willingness and the ability to pay for it.
Types of demand
1) Negative demand:- product/services that people dislikes and don't want
2) Non- existent demand:- product/services that people don't know
3) latent demand :- demands that people realize later.
4) Declining demand:- demands that people have less interested in than before.
5) Unwholesome demand:- product/services that have bad effect.
6) Full demand:- product/services that supply meeting its demand.
7) Overfull demand:- product/services that the demand is more than the supply.
8) Irregular demand:- product/services which usage are based on time.
Law of demand
The quantity of a commodity demanded in a given time period increases as its price falls, ceteris paribus. (l.e. other things remaining constant)
According to law of demand, other things being equal, there is an inverse relationship between price and quantity demanded. If the price of the commodity falls, the quantity demanded of it will rise and if the price of a commodity rises, its quantity demanded decline.
ASSUMPTIONS OF LAW OF DEMAND
- Income of consumers do not change.
- Price of related goods do not change.
- Taste and Preferences of consumers do not change.
-Consumers do not expect goods in near future.
- Government policies do not change.
- Weather Conditions Business
DEMAND FUNCTION:
The function explains relationship between price of a good and demand for it is called demand function. Demand for a commodity depends upon not only its price but also on prices of other goods, income of the consumer, tastes and habits of the consumer etc., Technically this is written as: Demand Function: D,= f(Px, P., Y, T, E)
D, Demand for Commodity
P= Price of Commodity X
P, Price of Other Goods
Y = Income of the Consumer
T = Tastes
E = Expectations of the Consumer
Demand schedule:-
A table showing the quantities of a good that a consumer is willing and able to buy at the prevailing price in a given time period.
INDIVIDUAL DEMAND FUNCTION
Individual demand function refers to the functional between individual demand function
D₂ = f (P₁, P, Y, T, E) where,
D, = Demand for Commodity
P, Price of the given
P, = Prices of Related Goods Commodity
Y= Income e Consumer;
T = Tastes and Preferences
E Expectation of Change in Price in future.
MARKET DEMAND FUNCTION
• Market demand function refers to the functional and the factors affecting market demand.
• D, = f (P₂P, Y, T, E, P, D) where,
• D, = Demand for Commodity economics
• P, = Price of the given Commodity
• P₁ = Prices of Related Goods
• Y = Income of the Consumer;
• T Tastes and Preferences
1) LAW OF DIMINISHING MARGINAL UTILITY- As per this law, as the consumption of a commodity, marginal utility derived from every successive unit goes diminishing. As per this, a consumer is willing to pay less and less additional unit of a commodity.
2) SUBSTITUTION EFFECT :-
The substitution effect to the increase in the quantity demanded of TEA when its price falls while keeping the real income of the consumer constant.
* The consumer substitutes the cheaper good TEA for the relatively dearer good COFFEE
If the price of the commodity decreases while the price of the other is assumed to remain the same, then the latter becomes dealer and the demand for the cheaper commodity increases.
3) INCOME EFFECT- It refers to change in quantity demanded when real income of buyer changes due to change in price of the commodity. With a fall in real income increases and, thus, demand of a commodity expands.
Different Uses
When the price of the commodity rises, then the consumer restricts its usage for the most important purpose. On the other hand, if the commodity becomes cheap then it can be utilized for all kinds of purposes, whether important of not.
4) SIZE OF CONSUMER GROUP- When price falls, it attracts new buyers who can now purchase the commodity.
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