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Demand
“Quantities of a particular good or services a
consumer willing & able to buy at different
possible prices during a specific period of
time”
• It is the willingness and ability of a person to
pay for the object that he desire

If you demand something, then you
1. Want it
2. Can afford it
3. Have made a definite plan to
buy it

Direct Demand and Derived
Demand
Direct Demand(for consumption goods):
Goods and services that satisfy consumer
desires.
Derived Demand-These are sometimes called
intermediate goods.
• For example: demand for steel (an
intermediate good) is derived from the demand
for final goods (e.g., automobiles).

The Law of Demand
“As the price falls, the quantity demanded rises,
and as price rises, the quantity demanded falls,
other things being constant”
• Negative relationship with the price

Assumptions of the Law of
Demand
• Constant income
• No change in tastes
• Fashion and habits
• Price of related goods remains unchanged
• No future expectations
• No change in weather and population

Exceptions to the Law of Demand
1) Giffen Goods: the goods for which rise in the
price is followed by an extension of demand
& visa versa.
Eg: bajra, potato
(normal goods)

2) Snob Appeal or Veblen Good:
• People sometimes buy certain commodities
like diamonds at high prices to display their
riches to the other members of the community
to which they themselves belong.

3) Speculative Demand:
• In a speculative market
(such as the stock market),
a rise in the price of a
commodity (such as, share)
creates an impression
among buyers that its price
will rise further.

4) Highly Essential Goods:
 In case of certain
highly essential items
such as life- saving
drugs, people buy a
fixed quantity at all
possible price.
 Their response to
price change is
almost nil.

Demand Function:
• A demand function is a causal relationship
between a dependent variable (i.e., quantity
demanded) and various independent variables
(i.e., factors which are believed to influence
quantity demanded)
Q = f(P)

Determinants of Demand
• Price of the good
• Price of related goods [substitutes and
complements]
• The size of household income
• Taste and preference
• The distribution of income among households
• Number of Buyers

Kinds of Demand
Three kinds of demand may be distinguished:
(i) Price demand: it
expresses relationship
between prices and
quantities

(ii) Income Demand:
It expresses
relationship between
income of the
consumer and
quantity demanded

(iii) Cross Demand:
It expresses
the price of other
good(A) and
quantity
demanded(B).

Demand Schedule
A list showing the quantity
of a good that consumers
would choose to purchase at
different prices, with all
other variables held
constant
Prices Quantity
4 28
8 15
12 5
16 1
20 0

Demand Curve
Graphically shows the
the price of a good
and the quantity
demanded, holding
constant all other
variables that
influence demand

Quantity Price
0.5 22
1 15
1.5 10
2 7
2.5 5
3 4
Quantity of potato(Kg) bought at various
level of price(Rs).

0
5
10
15
20
25
0 0.5 1 1.5 2 2.5 3 3.5
Quantity
P
r
i
c
e
X
Y
Demand curve

Changes in Quantity Demanded
• Occurs due to change in prices
• Results in movement from one point to another
on a fixed demand curve
• Also called extension & contraction of demand

Change in Demand
• Occurs due to changes in determinants of
demand other than price
• Results in shifting of the demand curve either
to the right or to the left
• Also called rise and fall of demand

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demand curve

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