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2.2.1 Annx

# 2.2.1 Annx

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06/24/2014

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For Classroom Use Only
ANNEXURE
Individual Demand and Market demand
The market demand consists of the total quantity demanded by each individual in themarket. Conceptually, the market demand curve is formed by computing thehorizontal summation of the individual demand curves for all consumers. The table-2and figure: 02 below illustrate this process.
Table 2 ( Demand of X in liters)
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This diagram illustrates a simple case in which there are only three consumers,Person A, Person B and Person C. Notice that the total quantity demanded in themarket is just the sum of the quantities demanded by each individual. In thisdiagram, Person A wished to buy 12 units, person B wishes to buy 15 units andperson C wishes to buy 7 units of commodity ‘X’ when the price is tk.3. Thus, at aprice of tk.3, the total quantity demanded in the market is 34 (=12+15+7) units of this commodity.Of course, this example is highly simplified since there are many buyers in most real-world markets. The same principle though would hold: the market demand curve isderived by adding together the quantities demanded by all consumers at each andevery possible price.
CATEGORIES OF DEMAND(a) DEMAND FOR CONSUMERS’ GOODS AND PRODUCERS’ GOODS
Consumers’ goods are goods used for final consumption, e.g. food items, readymadeclothes, houses. Producers’ goods are used for production of other goods,consumers’ or producers’, e.g. machines, tools, raw-materials. Demand forconsumers’ goods is also termed as direct demand, for these goods are used directlyfor final consumption. Demand for producersgoods are demanded not for finalconsumption but for the production of other goods. The distinction betweenconsumers and producers goods is somewhat arbitrary, for whether a good is aconsumers’ good or producers’ good depends upon its use. For example, if wheat isused to make eatables in a kitchen, it is a consumer good while if the same wheat isused for making bread in a bakery, then it is a producers’ good. However, thisdistinction is useful because, among other factors, demand for a consumer gooddepends on consumers’ income while that for a producers’ good depends on theoutputs of the industries using this product as an input.
(b) PERISHABLE AND DURABLE GOODS’ DEMAND
Both consumers’ and producersgoods are further divided into perishable (non-durable) and durable goods. Perishable goods are those, which can be consumedonly once, while durable goods are those, which can be used more than once over aperiod of time. For example, sweets, bread, and milk are perishable consumers’ goods; consumables like coal, oil and raw materials are non-durable producers’ goods; furniture, refrigerator, and car are durable consumers goods; and machines,tools, and factory buildings are durable producers’ goods. This distinction is usefulbecause non-durable products present more complicated problems for demandanalysis than durable products. Sales of non-durables are made largely to meetcurrent demand, which depends on current conditions. Sales of durables, on theother hand, add to the stock of existing goods, whose services are consumed over a
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period of time. Thus, they have two kinds of demand: replacement of old productsand expansion of total stock. Their demands fluctuate with business conditions.Speculations and price expectations may exert an influence on their demands.Labour is a highly perishable Producers’ goods.
(c) DERIVED AND AUTONOMOUS DEMANDS
When the demand for a product is tied to the purchase of some parent product, itsdemand is called derived. For example, the demand for cement is a derived demand,for it is needed not for its own sake but for satisfying the demand for buildings. Inthis sense, demand for all producers’ goods is derived. So is the demand for money.Autonomous demand, on the other hand, is not derived. It is hard to find a producttoday whose demand is wholly independent of all other demand. However, thedegree of this dependence varies widely from product to product. For example, thedemand for automotive batteries is fully tied up with the demands of vehicles usingthese batteries, while the demand for sugar is loosely tied up with the demand fordrinks. Thus, the distinction between derived and autonomous demands is more of degree than of kind. Demand for labour is called a derived demand as it dependssignificantly on the production level or scale.
(d) FIRM AND INDUSTRY DEMAND
Generally, more than one firm produces a Good and so there is a difference betweenthe demand facing by an individual firm and that facing by an industry. (All firmsproducing a particular good constitute an industry engaged in the production of thatgood.) For example, demand for Fiat car alone is a firm’s demand and demand for allkinds of cars is industry’s demand.
DETERMINANTS OF DEMAND
Changes in the price of a good inversely affect the demand for thecommodity.
Consumers are willing and able to buy more of a good at thelower price of that and would buy less quantity at the higher price of the good,subject to holding all other factors constant.So, Price and quantity demanded are negatively (inversely) related and maincauses of that are (i) diminishing marginal utility, (ii) income effect, (iii)substitution effect, (iv) less urgent use of commodity as it becomes cheaper.
Changes in income positively affect the demand for the commodity
.Changes in income can either increase or decrease demand, depending onwhether the good is normal or inferior. If an increase in income causesconsumers to demand more of a good, when all other variables in thegeneralized demand function are held constant, we refer to such a commodityas a normal good. A good is also a normal good if a decrease in income causesconsumers to demand less of the good, all other things held constant.
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