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CHAPTER-3 DEMAND

MEANING OF DEMAND
Demand is the quantity of a commodity that a consumer is willing and able to buy, at each
possible price during a given period of time.
The definition of demand highlights four essential elements of demand:
(i) Quantity of the commodity
(ii) Willingness to buy.
(iii) Price of the commodity
(iv) Period of time.

Demand for a commodity may be either with respect to an individual or to the entire market. Means
individual demand and market demand. We will discuss both demand briefly.

INDIVIDUAL DEMAND
Individual demand refers to the quantity of a commodity that a consumer is willing and able to buy, at each
possible price during a given period of time.

DETERMINANTS OF DEMAND (INDIVIDUAL DEMAND)

Demand for a commodity increases or decreases due to a number of factors. The various factors affecting
demand are discussed below;
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 ad: D = f(P). the inverse relationship
between price and demand, known as Law of Demand, is discussed in Section 3.7

2. Price of 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 affected by change in price of substitute goods.
(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.
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 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.
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.
 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.
 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 the commodity is 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.

DEMAND FUNCTION
Demand function shows the relationship between quantity demanded for a particular commodity and
the factors influencing it. It can be either with respect to one consumer (individual demand function) or to all
the consumers in the market (market demand function).

Individual demand Function

Individual demand Function refers to the functional relationship between individual demand and the
factors affecting individual demand.
It is expressed as: DX= f (PX, Pr, Y, T, F)
Where,
DX = Demand for Commodity x;
F= Expectation of Change in price in future
PX= price of the given Commodity x;
Pr = Prices of Related Goods;
Y= Income of the Consumer
T= Tastes and Preferences

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F= Expectation of Change in price in future.

DEMAND SCHEDULE
Demand schedule is a tabular statement showing various qualities of a commodity being demanded at
various levels of price, during a given period of time. It shows the relationship between price of the
commodity and its quantity demanded.
A demand schedule can be determined both for buyers and for the entire market. So, demand schedule is of
two types:
1. Individual Demand Schedule
2. Market Demand schedule

Individual Demand Schedule

Individual Demand Schedule refers to a tablular statement showing various quantities of a commodity
that a consumer is willing to buy at various levels of price, during a given period of time. Table 3.1
shows a hypothetical demand schedule for commodity ‘x’

Table 3.1: Individual Demand Schedule

Price (in Rs.) Quantity Demanded of commodity X (in units)
5 1
4 2
3 3
2 4
1 5
As seen in the schedule, quantity demanded of ‘x’ increases with decrease in its price. The consumer is willing
to buy 1 unit at Rs. 5. When price also falls to Rs. 4, demand rises to 2 units.

DEMAND CURVE
Demand curve is a graphical representation of demand schedule. It is the locus of all the points showing
various quantities of a commodity that a consumer is willing to buy a various levels of price, during a given
period time, assuming no change in other factors.
 It is shows the inverse relationship between the quantity demanded of a commodity with its price,
keeping other factor constant.
 It can be drawn for any commodity by plotting each combination of demand schedule on a graph.
 Like demand schedules, demand curves also be drawn both for individual buyers and for the entire
market. So, demand curve is of two types:
(i) Individual Demand Curve
(ii) Market Demand Curve

Individual Demand Curve

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Individual demand curve refers to a graphical representation of individual demand schedule.

Y Demand Curve

5- .P
4-
Price (in Rs.) 3- .R
2- .S
1- .T
D
O 1 2 3 4 5 X

Quantity demanded (in units)

Fig. 3.1

With the help of Table 3.1(Individual demand schedule) the individual demand curve can be drawn as shown
in Fig. 3.1.

As seen in the diagram, price (independent variable) is taken on the vertical axis (Y-axis) and quantity
demanded (dependent variable) on the horizontal axis (X-axis). At each possible price, there is a quantity,
which the consumer is willing to buy. By joining all the points (P to T), we get a demand curve ‘DD’.

Market demand
Market demand refers to the quantity of a commodity that all consumers are willing and able to buy, at each
possible price during a given period of time.

DETERMINANTS OF MARKET DEMAND

Market demand is influenced by all the factors affecting individual demand for a commodity. In addition,
it is also affected by the following factors:

1. Size and Composition of Population:

 Market demand for a commodity is affected by size of population in the country.
 Increases in population raises the market demand, while decrease in population reduces the market
demand.
 Composition of population, i.e., ratio of males, females, children and number of old people in the
population also affects the demand for a commodity.
 For example, if a market has larger proportion of women, then there will be more demand for
articles of their use such as lipstick, sarees, etc.
2. 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 jackets increases, whereas, market
demand for raincoat and umbrellas increases during the rainy season.
3. Distribution of Income:
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 If income in the country is equitably distributed, then market demand for commodities will be more.
 However, if income distribution is uneven, i.e., people are either very rich or very poor, then market
demand will remain at lower level.

Market Demand Function

Market Demand function refers to the functional relationship between market and the factors
affecting market demand.
As mentioned before, market demand is affected by all factors affecting individual demand. In addition,
it is also affected by size and composition of population, season and weather and distribution of
income.
So, market demand function can be expressed as
So, market demand DX = f (PX, PY,Y, T, F, PO, S, D)
Where,
DX = Market demand of commodity x;
PX = Price of given commodity x;
Pr= Price of Related God0ds
Y = income of the Consumers
T = Tastes and preference
F= Expectation of Changes in price in future
PO = Size and Composition of population
S = Season and weather
D = Distribution of Income
Market demand Schedule
Market demand schedule refers to a tabular statement showing various quantities of a commodity that
all the consumers are willing to buy at various levels of price, during a given period of time. It is the
 sum of all individual demand schedules at each and every price.
 Market demand schedule can be expressed as: Dm = DA + DB = ----------------
 Where Dm is the market demand and DA + DB = ------------- are the individual demands of Household A,
Household B and so on.
 Let us assume that A and B are two consumers for commodity x in the market. Table 3.2 shows that
market demand schedule is obtained by horizontally summing the individual demands:
Table 3.2: market Demand Schedule
Price Individual demand (in units) Marker Demand (In
units)
Rs. Household A (DA) Household B(DB) (DA + DB)
5 1 2 1 + 2 =3
4 2 3 2+3=5
3 3 4 3+4=7
2 4 5 4+5=9
1 5 6 5 + 6 = 11
As seen in Table 3.2 market demand is obtained by adding demand of household A and B at different prices.
At Rs. 5 per unit, market demand is 3 units. When price falls to Rs..4, market demand rises to 5 units. So,
market demand schedule also shows the inverse relationship between price and quantity demanded.

Market Demand Curve:

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Marker Demand Curve refers to a graphical representation of market demand schedule. It is obtained by
horizontal summation of individual demand curves.
The points shown in Table 3.2 are graphically represented in Fig. 3.2. DA and DB are the individual demand
curves. Market demand curve (Dm) is obtained by horizontal summation of the individual demand
curves (DA and DB)

Y Market Demand Curve

5- . Dm is flatter than DA and DB

4-
Price (in Rs.) 3- .
2-
1- .
DA DB Dm X
O 2 4 6 8 10 12

Quantity demanded (in units)

Fig. 3.2

The points shown in Table 3.2 are Market demand curve ‘DM’ also slope downwards due to inverse
relationship between price and quantity demanded.
Market Demand Curves is Flatter
NOTE:- Market demand curve is flatter than the individual demand curves. It happens because as price
changes proportionate change in individual demand

Slope of Demand Curve

 The slope of the Demand equals the Change in price divided by the Change in Quantity.
 The slope of a curve refers to its steepness indicating the rate at which it moves upwards or downwards.
In the language of W. J. Baumol, “The slope of a line is a measure of steepness”. The slope of a demand
curve shows the ratio between the two absolute changes in price and demand (both are variables)
i.e. Slope of Demand Curve = Change in price (∆P)
Change in Quantity (∆Q)
 Due to inverse relationship between price and demand, the demand curve slopes, downwards. So,
slope is negative.
 Slope of the demand curve measures the flatness or steepness of the demand curve. So, it is based on
the absolute change in price and quantity.
Let us calculate the slope of demand curve with the help of following diagram:
In the given diagram, when price falls from Rs. 8 to Rs. 4, then quantity demanded increases from 2 units to 4
units. In such a case, the slope of demand curve will be:
Slope of Demand Curve = ∆P
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∆Q
=4–8
4–2
=-2

10 –
8 - ∆P = - 4
Price (in Rs.) 6-
4– ∆Q = 2
2-
D
O 1 2 3 4 5 X

Quantity Demanded (in units)

LAW OF DEMAND
Law of demand states the inverse relationship between price and quantity demanded, keeping
other factors constant (ceteris paribus). This law is also known as the ‘First law of Purchase’.
Assumptions of Law of Demand
While stating the law of demand, we use the phrase ‘keeping other factors constant or ceteris
paribus’. This phrase is used to cover the following assumptions on which the law is based:
1. Prices of substitute goods do not change.
2. Price of complementary goods remain constant.
3. Income of the consumer remains the same.
4. There is no expectation of change in price in the future.
5. Tastes and preferences of the consumer remain the same.
Law of demand can be better understood with the help of Table 3.3 and Fig. 3.3;
Table 3.3: Demand Schedule
Price (in Rs) Quantity demanded (in units)
5 1
4 2
3 3
2 4
1 5

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Y Demand Curve

5– .
4- .
Price (in Rs.) 3- .
2– .
1- .
D
O 1 2 3 4 5 X

Quantity demanded (in units)

Fig. 3.3

Table 3.3 clearly shows that more and more units of commodity are demanded, when price of the commodity
falls. As seen in Fig. 3.3, demand curve DD slopes downwards from left to right, indicating an inverse
relationship between price and quantity demanded.

Why other Factors are kept Constant?

The quantity demanded of a commodity depends on many factors, besides price of the given commodity. If we
want to understand the separate influence of one factor, it is necessary, that all other factors are kept constant.
Therefore, while discussing the ‘Law of Demand’, it is assumed that there is no change in the other factors.
Important facts about law and Demand
1. Inverse Relationship: It states the inverse relationship between price and quantity demanded. It simply
affirms that an increase in price will tend to reduce the quantity demanded and a fall in price will lead to an
increase in the quantity demanded.
2. Qualitative, not Quantitative: it makes a qualitative statement only i.e. it indicates the direction of change
in the amount demanded and does not indicate the magnitude of change.
3. No Proportional Relationship: It does not establish any proportional relationship between change in price
and the resultant change in demand. If the price rises by 10%, quantity demanded may fall by any
proportion.
4. One-Sided: Law of demand is one sided as it only explains the effect of change in price on the quantity
demanded. It states nothing about the effect of change in quantity demanded on the price of the
commodity.

Reasons for Law of Demand

The various reasons for operation of Law of Demand are:
1. Law of Diminishing Marginal Utility:
 Law of diminishing marginal utility states that as we consume more and more units of a commodity,
the utility derived from each successive units goes on decreasing.
 So, demand for a commodity depends on its utility.

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 If the consumer gets more satisfaction, he will pay more. As a result, consumer will not be
prepared to pay the same price for additional units of the commodity.
 The consumer will buy more units of the commodity only when the price falls.

2. Substitution Effect:
 Substitution effect refers to substituting one commodity in place of other when it becomes
relatively cheaper.
 When price of the given commodity falls, it becomes relatively cheaper as compared to its
substitute (assuming no change in price of substitute).
 As a result, demand for the given commodity rises.
 For example, if price of given commodity (Say, Pepsi) falls, with no change in price of its substitute
(say, Coke), then Pepsi will become relatively cheaper and will be substituted for coke, i.e., demand
for Pepsi will rise.

3. Income Effect:
 Income effect refers to effect on demand when real income of the consumer changes due to
change in price of the given commodity.
 When price of the given commodity falls, it increases the purchasing power (real income) of the
consumer.As a result, he can purchase more of the given commodity with the same money income.
 For example, Suppose Isha buys 4 chocolates @ Rs. 10 each with the pocket money of Rs. 40. If
price of chocolate falls to Rs. 8 each, then with the same money income, Isha can buy 5 chocolates
due to an increase in her real income.

‘Price Effect’ is the combined effect of Income Effect and Substitution Effect Symbolically: Price Effect
= Income Effect + Substitution Effect. For a detailed discussion on Income Effect and Substitution
Effect, refer Power Booster.

4. Additional Customers:
 When price of a commodity falls, many new consumers, who were not in a position to buy it earlier
due to its high price, starts purchasing it.
 In addition to new customers, old consumers of the commodity start demanding more due to its
reduced price.
 For example, If price of ice-cream family pack falls from Rs. 100 to Rs, 50 per pack, then many
consumers who were not in a position to afford the ice-cream can now buy it with decrease in its
price. Moreover, the old customers of ice-cream can now consume more. As a result, its total
demand increases.
5. Different uses:
 Some commodities like milk, electricity, etc. have several uses, some of which are more important
than the others.
 When price of such a good (say, milk) increases, its uses get restricted to the most important
purpose (say, drinking) and demand for less important uses (like cheese, butter, etc.) gets
reduced.
 However, when the price of such a commodity decreases the commodity is put to allits uses,
whether important or not.
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Exceptions of Law of Demand

1. Giffen Goods:
 These are special kind of inferior goods on which the consumer spends a large part of his income
and their demand rises with an increase in price and demand falls with decrease in price
 .For example, in our country, it is often seen that when price of coarse(thick) cereals(grain) like
jowar and bajra falls, the consumers have a tendency to spend less on them and shift over to
superior cereals like wheat and rice.
 This phenomenon, popularly known as ‘Giffen’s paradox’ was first observed by Sir Robert Giffen.

Giffen’s Paradox
In the early 19th century Sir Robert Giffen observed that when price of bread increased, then the low-paid
British wage earners bought more of bread and not less. These wage earners used to live mainly on the diet of
bread. With rise in its price, they were focused to cut down their consumption of meat and other expensive
food item. To maintain their intake of food, they bought more bread at higher prices. This phenomenon was
referred to as ‘Giffen’s paradox’ as it went against the law of demand

2. Status Symbol Goods or Goods of ostentation:

 The exception related to certain prestige goods which are used as status symbols.
 For example, diamonds, gold, antique paintings, etc. are bought due to the prestige(reputation)
they confer(provide) upon the possessor. These are wanted by the rich persons for prestige and
distinction.
 The higher the price, the higher will be the demand for such goods.

3. Fear of Shortage:
 if the consumers except a shortage or scarcity of a particular commodity in the near future, then
they would start buying more and more of that commodity in the current period even if their prices
are rising.
 The consumers demand more due to fear of further rise in prices.
 For example, during emergencies like war, famines, etc. consumers demand goods even at higher
prices due to fear of shortage and general insecurity.
4. Ignorance:
 Consumers may buy more of a commodity at a higher price when they are ignorant of the
prevailing prices of the commodity in the market.
5. Fashion related goods:
 Goods related to fashion do not follow the law of demand and their demand increases even with a
rise in their prices.
 For example, if any particular type of dress is in fashions, then demand for such dress will
increase even if its price is rising.
6. Necessities of Life:
 Another exception occurs in the use of such commodities, which become necessities of life due to
their constant use.

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 For example, commodities like rice, wheat, salt, medicines, etc. are purchased even if their prices
increase.
7. Change in Weather:
 With change in season/weather, demand for certain commodities also changes, irrespective of any
change in their prices.
 For example, demand for umbrellas increases in rainy season even with an increase in their prices.

Change in Quantity Demanded Vs Change in Demand

1. Change in Quantity Demanded:
 Whenever demand for the given commodity changes due to change in its own price and other
factors remains constant, then such change in demand is known as ‘Change in Quantity
Demanded”.
 For example, If demand for Pepsi changes due to change in its own price, then such change in
demand for Pepsi is known as change in quantity demanded.
2. Change in demand:
 Whenever demand for the given commodity changes due to factors other than price, then
such change in demand is known as ‘Change in Demand”.
 For example, If demand for Pepsi changes due to change in the such change due to change in
price of Coke or due to change in income or due to a change in taste, then such change in
demand for Pepsi is known as change in demand.

Change in Quantity Demanded Vs Change in Demand

Basis Change in Quantity Demanded Change in Demand
Meaning When the quantity demanded changes When the demand changes due to
due to a change in the price, keeping change in any factor other than the
other factors constant, it is known as own price of the commodity, it is
change in quantity demanded. termed as change in demand.
Effect on It leads to a movement along the same It leads to a shift in the demand
Demand demand curve (Fig. 3.4) either upwards curve (Fig. 3.7), either rightwards
Curve (known as Contraction in demand) or (known as Increase in demand) or
downwards (known as Expansion in leftwards (known as Decrease in
demand). demand)
Reason It occurs due to an increase or a It occurs due to change in other
decrease in the price of the given factors, like change in prices of
commodity. substitutes, change in prices of
Complementary goods, change in
income, etc.

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Graph

Expansion in Demand vs Increase in Demand

Basis Expansion in Demand Increase in Demand
Meaning When the quantity demanded rises due to a Increase in demand refers to a rise in
decrease in the price keeping other factors the demand of a commodity caused
constant, it is known as expansion in due to any factor other than the own
demand. price of the commodity.
Tabular Price (Rs.) Demand (Units) Price (Rs.) Demand (Units)
Presentatio 20 100 20 100
n 15 150 20 150
Effect on There is a downward movement (Fig. 3.5) There is a rightward shift (Fig. 3.8) in
Demand along the same demand curve. demand curve.
Curve
Reason It occurs due to a decrease in the price of the It occurs due to favourable change in
given commodity. other factors like increase in the prices
of substitutes, decreases in the prices
of complementary goods, increase in
income in case of normal goods, etc.
Graph

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Contraction in Demand Vs Decrease in Demand

Basis Contraction in Demand Decrease in Demand
Meaning When the quantity demanded falls due Decrease in demand refers to a fall in the
to an increase in the price keeping demand of a commodity caused due to any
other factors constant, it is known as factor other than the own price of the
contraction in demand. commodity.
Tabular Price (Rs.) Demand (Units) Price (Rs.) Demand (Units)
Presentation 20 100 10 150
25 70 10 100

Effect on There is a upward movement (Fig. 3.5) There is a leftward shift (Fig. 3.9) in demand
demand along the same demand curve. curve.
Curve
Reason It occurs due to a increase in the price of It occurs due to unfavourable change in other
the given commodity. factors like decrease in the prices of substitutes,
increases in the prices of complementary goods,
decrease in income in case of normal goods, etc.
Graph

Substitute Goods Vs Complementary Goods

Basis Substitute Goods Complementary Goods
Meaning Substitute goods refer to those goods Complementary goods refer to those goods which
which can be used in place of one are used together to satisfy a particular want.
another to satisfy a particular want.
Nature of Substitute goods have competitive Complementary goods have joint demand.
Demand demand.
Relation Price of one substitute good has positive Price of a complementary good has negative
relationship with quantity demanded of relationship with quantity demanded of another
another substitute good. complementary good.
Example (i) Tea and Coffee (i) Tea and Sugar
(ii) Coke and Pepsi (ii) Car and Petrol.

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Graph

Cross Demand
Gross demand refers to the relationship between the demand of a given commodity and the price of
related commodities, other things remaining the same. Cross demand indicates how much quantity of a
given commodity will be demanded at different prices of a related commodity (substitute or complementary).
It can be expressed as: DX = f(PY)
Where:
DX = Demand for the given commodity;
f = Functional relationship
PY = price of the commodity (substitute or complementary).
Cross Demand can be either Positive Or Negative
 Cross demand is positive in case of substitute goods as demand for the given commodity varies directly
with the prices of substitute goods.
 Cross demand is negative in case of complementary goods as demand for the given commodity varies
inversely with the prices of complementary goods as demand for the given commodity varies inversely
with the prices of complementary goods.
Cross price Effect on Demand Curve

Cross Price Effect to effect on the demand for a given commodity due to a change in the price of a
related commodity. It means, cross price effect originates from substitute goods and complementary goods.
Let us understand the effect on the demand curve of a given commodity when there is change in the prices of
substitute and complementary goods.

Comparison between ‘Normal Goods’, Inferior Goods’ and ‘Giffen Goods’.

Basis Normal Goods Inferior Goods Giffen Goods

Substitution It is Positive It is Positive It is Positive
Effect
Income It is Positive It is Negative. It is Negative.
effect
Price Effect It is Positive as both the It is positive as positive It is Negative as
substitution and income Substitution Effect is negative Income
effects are positive. So, stronger than Negative Effect is stronger
demand for normal income effect. So, its than Positive
good rises with fall in its demand rises with fall in its Substitution Effect.

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price. price. As a result, its

demand falls with fall
in its price.
Laws of It applies, i.e., their It applies, i.e., their It does not apply, i.e.,
Demand demand curve slope demand curve slope their demand curve
downwards. downwards. slope upwards.
Example ‘Pepsi’ is a Normal ‘Amul Toned Milk’ is an ‘Jowar’ is a Giffen
good if with fall in the inferior good if with fall in good if with fall in its
price. its prices. price:
 Positive  Positive Substitution  Positive
Substitution Effect Effect increases its Substitution
increases its demand as it becomes Effect increases
demand as it relatively cheaper as its demand as it
becomes relatively compared to its becomes
cheaper as substitute (Say, Mother relatively cheaper
compared to its Dairy Toned Milk)’ and as compared to
substitute (Say, its substitute.
Coke)’ and
 Positive Income  Negative Income Effect  Negative Income
Effect increases its reduces its demand as Effect reduces its
demand due to rise increased real income demand as
in real income. induces consumer to increased real
shift to superior income induces
commodities (Say, consumer to shift
Amul full cream Milk) to superior
commodities
(Say, rice.)
The positive substitution The negative income
effect is stronger than effect is stronger
negative income effect. As than positive
a result, demand for Amul substitution effect. As
Toned Milk’ rises with fall a result, demand for
in its price. ‘Jowar’ falls with fall
in its price.

Normal Goods Vs inferior Goods

Basis Normal Goods Inferior Goods
Meaning Normal goods refer to those goods whose Inferior goods refer to those goods whose
demand increases with an increase in demand decreases with an increase in
income. D Y income. D Y
Income Effect Income effect is positive in case of normal Income effect is negative in case of inferior
goods. goods.
Relation There is a direct relation between income There is an inverse relation between income
and demand for normal goods. and demand for inferior goods.
Example ‘Full Cream Milk’ is a normal good if its ‘Toned Milk’ is an inferior good if its demand

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demand increases with an increase in decreases with an increase in income.

income.
Graph

Kinds of Demand
1. Price Demand: Price demand refers to a relationship between the price and demand of a
commodity, assuming other factors constant. It can be shown as :
DX = f(Px)
Where:
DX = Demand for the given commodity;
f = Functional relationship
Px= Price of the given commodity
2. Income Demand: Income demand refers to a relationship between the income of consumer and the
quantity demanded of a commodity, assuming other factors constant. Symbolically:
DX = f(Y)
Where:
DX = Demand for the given commodity;
f = Functional relationship
Y= Income of the consumer.
3. Cross Demand: Cross demand refers to a relationship between the demand of a given commodity
and the prices of related commodities, assuming other things remaining the same.
4. Joint Demand: When two or more goods are demanded simultaneously to satisfy a particular want,
then such a demand is called joint demand.
For example, demand for sugar, milk, and tea leaves is a joint demand, as they are demanded together to
prepare tea.
5. Composite Demand: When a commodity can be put to several uses, its demand is known as
composite demand.
For example, demand for electricity is a composite demand as it can be used for various purposes like
lightning rooms, running the refrigerator, TV, AC, etc.

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6. Derived Demand: Demand for a commodity, which depends on the demand for other goods, is
known as derived demand.
For example, demand for labour producing cloth is a derived demand as it depends on the demand for
cloth.
7. Direct Demand: When a commodity satisfies the wants directly, its demand is termed as direct
demand.
For example, demand for clothes, books, food is a direct demand as these items satisfy the wants directly.
8. Alternative Demand: Demand is known as alternative demand, when it can be satisfied by different
alternatives.
For example, there are number of options (alternatives) to satisfy the demand for food like chapatti, rice,
salad, fruits, burger, pizza, etc.
9. Competitive Demand: When two goods are close substitutes of each other and increase in demand
for one of them will decrease the demand for the other, then the demand for any one of them is
known as competitive demand.
For example, increase in demand for coffee might reduce the demand for tea. It happens because
purchase of more of one commodity (say, coffee) leads to a lesser requirement for the other commodity
(say, tea).

THE END
1. Which of the following is an example of complementary goods?
(a) Tea and Coffee
(b) Coke and Pepsi
(c) Rice and Wheat
(d) None of these
2. The demand for normal good ________ with an increase in income of the consumer.
(a) Increases
(b) Decreases
(c) Remains same
(d) Either increases or decreases
3. Increases in price of substitute good leads to:
(a) Expansion of Demand
(b) Increase in Demand
(c) Decrease in Demand
(d) Contraction in Demand
4. A, B and C are three commodities, where A and B are complementary; whereas A and C are substitutes. With increase in
price of commodity A:
(a) Demand of all the commodities A, B and C will fall.
(b) Demand of all the commodities A and B will fall, whereas demand of C will rise.
(c) Demand of all the commodities A and C will fall, whereas demand of B will rise.
(d) Demand of all the commodities B and C will fall, whereas demand of A will rise.
5. When two or more goods are demanded simultaneously, it is known as:
(a)Joint Demand
(b) Alternate Demand
(c) Direct Demand
(d) Composite Demand
6. There will be ___________ in the demand curve of cars with an increase in the price of petrol:
(a) Rightward Shift
(b) Upward Movement
(c) Leftward Shift
(d) Downward Movement
7. The demand curve for a commodity is generally drawn on the assumption that:

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(a) Prices of substitute goods do not change.

(b) Tastes and preferences of the consumer remain the same.
(c) Income of the consumer remains the same.
(d) All of these.
8. Which one of these is not an examples of substitute goods?
(a) Tea and Coffee
(b) Coke and Pepsi
(c) Ink pen and Ball Pen
(d) Bread and Butter.
9. Law of Demand states the ___________ relationship between price and quantity demanded.
(a) Inverse
(b) Positive
(c) Proportional
(d) None of these.
10. Expansion in demand leads to:
(a) Rightward Shift in demand curve.
(b) Downward Movement along the demand curve.
(c) Upward Movement along the demand curve.
(d) None of these
11. Which one of these is a determinant of individual demand?
(a) Size and composition of population
(b) Season and weather
(c) Distribution of Income
(d) None of these
12. From the given demand schedule, determine the effect on demand curve:
Price (Rs.) 20 20
Demand (Units) 100 70

(a) Rightward Shift in demand curve

(b) Leftward Shift in Demand Curve
(c) Upward Movement along the demand curve
(d) Downward Movement along the demand curve.
13. Expansion in demand occurs due to:
(a) Rise in price of the given commodity
(b) Fall in price of the given commodity
(c) Rise in price of substitute goods
(d) Fall in price of complementary goods
14. There is a sudden change in climatic conditions resulting in hot weather. Assuming no change in the price of the cold
drinks, it will lead to:
(a) Upward movement along the same market demand curve.
(b) Downward movement along the same market demand curve.
(c) Rightward shift in the market demand curve.
(d) Leftward shift in the market demand curve.
15. A movement along the demand curve for soft drinks is best described as:
(a)Increase in demand
(b) Decrease in demand
(c) Change in quantity demanded
(d) Change in demand
16. If more is demanded at the same price or same quantity at a higher price, this fact of demand is known as:
(a) Extension of demand
(b) Increase in demand
(c) Contraction of demand
(d) Decrease in demand
17. Cross demand states the relationship between:
(a) Demand of given commodity and price of related goods.
(b) Demand of given commodity and income of the consumer.

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(c) Demand of given commodity and taste and preferences.

(d) None of these.
18. Which of the following is not an assumption of law of demand?
(a)Price of substitute goods do not change
(b) Income of the consumers remains same.
(c) There is no change in tastes and preferences of the consumers.
(d) Price of the given commodity does not change.
19. If change in price of good A affects the demand for good B, then:
(a) A is a substitute of good B
(b) A is a complement of good B.
(c) Both (a) and (b)
(d) Either (a) or (b).
20. In a typical demand schedule, quantity demanded:
(a) Varies directly with price.
(b) Varies proportionately with price.
(c) Varies inversely with price.
(d) Is independent of price.
21. Which of the following is a determinant of market demand?
(a) Income of consumers.
(b) Season and weather
(c) Price of related goods.
(d) All of the above.
22. Which of the following factors will lead to a leftward shift in the demand curve:
(a) Increase in income in case of inferior goods.
(b) Increase in income in case of normal goods.
(c) Increase in Population.
(d) Leftward shift in the demand curve.
23. Decrease in the price of the complementary goods leads to:
(a) Upward movement along the same demand curve.
(b) Downward movement along the same demand curve.
(c) Rightward shift in the demand curve.
(d) Leftward shift in the demand curve.
24. If the good ‘X’ rises and it leads to a fall in demand for good ‘Y’, then the two goods are:
(a) Substitute goods
(b) Complementary goods
(c) Normal goods
(d) Inferior goods
25. Market demand curve is obtained by _________ summation of the individual demand curve.
(a) Vertical
(b) Horizontal
(c) Both (a) and (b)
(d) Neither (a) nor (b)
26. Ceteris paribus means:
(a) Holding supply constant
(b) Holding demand constant
(c) Price being constant
(d) other factors being constant.
27. An increase in real income of a consumer induces him to buy more of a commodity whose prices has fallen. This is
known as:
(a) Inducement Effect
(b) Substitution Effect
(c)income Effect
(d) Utility Effect.
28. Expansion of Demand is associated with:
(a) Rise in price, Rise in quantity demanded.
(b) Fall in price, Fall in quantity demanded

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(c) Fall in Price, Rise in quantity demanded

(d) Rise in price, Fall in quantity demanded.
29. IF X and Y are Complementary Goods, then with increase in price of X:
(a) Demand of X will decrease and demand of Y will increase.
(b) Demand of X will Increase and demand of Y will Decrease.
(c) Demand of X and Y will increase.
(d) Demand of X and Y will increase.
30. If Tea and Coffee are substitutes, a fall in the prices of Tea leads to:
(I) Rise on the demand for Tea.
(II) Fall in the demand of Tea
(III) Fall in the demand for Coffee
(Iv) Rise in the demand of coffee
(a) Both (II) and (IV)
(b) Both (I) and (III)
(c) Both (II) and (III)
(d) Both (III) and (IV)
31. All except one of the following are assumed to remain same while drawing an individual’s demand curve for a product.
Which one is it?
(a) Tastes and preference of the individual
(b) Monetary income
(c) Price of the given product.
(d) Price of related goods.
32. With fall in price of commodity, demand of the commodity increases as it becomes relatively cheaper in comparison to
other commodities. This effect is known as:
(a) Substitution Effect
(b) Income Effect
(c) Law of Demand
(d) Law of diminishing Returns
33. The demand function of a product X is given as: Dx = 12 – 2Px, where Px stands for price. The demand at price of Rs. 2
will be:
(a) 6
(b) 8
(c) 5
(d) 10
34. The demand function of a product X is given as: Dx = 12 – 3Px, where Px stands for price. If an individual Y has a demand
of 8 units, then market price of the product is:
(a)Rs. 4
(b)Rs. 5
(c)Rs. 3
(d) Rs. 4.5
35. The demand function of a product X is given as: Dx = 12 – 2Px, where Px stands for price. If there are 5,000 customers for
the product, then market demand for the product at market price of Rs. 3 will be:
(a)40,000
(b) 30,000
(c) 20,000
(d) 16,000
36. Two commodities A and B can be inferred as close substitute of each other if:
(a) Rise in price of one leads to an increase in demand of other and vice versa.
(b) Rise in price of one leads to decrease in demand of other and vice versa.
(c) Fall in price of one lead to fall in demand of other one, but not the other way round
(d) Rise in price of one lead to rise in demand of other one, but not the other way round
37. A goods can be considered a normal good if an increase in income of the consumer causes _____________________ in
demand of the given product.
(a) Increase
(b) No Change
(c) Decrease

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(d) Less then proportion increase.

38. Expansion and contraction in demand are caused by:
(a) Change in price of the given good
(b) Change in income
(c) Change in prices of related goods.
(d) Change in population.
39. When income of the consumer falls, the impact on price-demand curve of an inferior good is; (Choose the correct
alternative) (CBSE, Delhi 2015)
(a) Shifts to the right
(b) Shift to the left
(c) There is upward movement along the curve.
(d) There is downward movement along the curve.
40. If due to fall in the price of good X, demand for good Y rises, the two goods are: (Choose the correct alternative)
(CBSE, All India 2015)
(a) Substitutes
(b) Complements
(c) Not related
(d) Competitive.
41. If with the rise in price of good Y, demand for good X rises, the two goods are: (Choose the correct alternative)
(CBSE, Foreign . 2015)
(a) Substitute
(b) Complements
(c) Not related
(d) Jointly demanded
42. The demand curve of a good shifts from DD’ to dd’. (CBSE, Delhi Compt. 2015)
Y
D d

Price (Rs.)

D 1 d1
X
O Demand (Units)
This shift can be caused by: (Choose the correct alternative)
(a) Fall in the price of the good
(b) Rise in the price of the good
(c) Rise in the price of substitute goods
(d) Rise in the price of complementary goods.

1. (d) 17. (a) 33. (b)

2. (a) 18. (d) 34. (a)
3. (b) 19. (d) 35. (b)
4. (b) 20. (c) 36. (a)
5. (a) 21. (d) 37. (a)
6. (c) 22. (a) 38. (a)
7. (d) 23. (c) 39. (a)
8. (d) 24. (b) 40. (b)
9. (a) 25. (b) 41. (a)
10. (b) 26. (d) 42. (c)
11. (d) 27. (c)

12. (b) 28. (c)

13. (b) 29. (d)

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14. (c) 30. (b)

15. (c) 31. (c)

16. (b) 32. (a)

Very Short Answer Type Questions (1 mark each)

Q. 1 Define demand for a good. (CBSE, Delhi Compt. 2014)
Q. 2 Define market demand. (CBSE, Delhi 2008, 2012, 2013)
Q. 3 What is Law of demand? [(CBSE, Delhi 2010 (III)]
Q. 4 Define ‘change in demand’. (CBSE, Sample Paper 2008)
Q. 5 What causes an upward movement along a demand curve of a commodity?
(CBSE, Sample Paper 2010)
Q. 6 Give one reason for a shift in demand curve. (CBSE, All India 2012)
Q. 7 What does a rightward shift of demand curve indicate? (CBSE, All India 2013)
Q. 8 What is the relation between price of good and demand of its complementary good?
(CBSE, All India Compt. 2013 (I)
Q. 9 Suggest any one of economic measure by which the government can promote the consumption of
‘Khadi’. (CBSE, Delhi Compt. 2006)
Q. 10 What economic measure can the Government take to reduce demand for commodity x which is harmful
for health? (CBSE, All India Compt. 2015)

Short Answer Type Questions (3 – 4 Marks each

1. Define market demand. State the law of demand and the assumptions behind it.
(CBSE, Foreign. 2004)
2. Explain the effect of increase in income of the consumer on demand for a good.
(CBSE, Delhi. 2007)
3. Explain the law of demand with the help of demand schedule. (CBSE, Delhi 2003)
4. State any 3 factors that cause an ‘increase’ in demand of a commodity.
(CBSE, Sample Paper 2012)
5. Distinguish between ‘change in demand’ and ‘change in quantity demanded’ of a commodity.
(CBSE, All India. 2004, All India Compt. 2015)
6. Explain the inverse relationship between the price of a commodity and its demand.
(CBSE, Sample paper 2010)
7. Distinguish between expansion in demand and increase in demand (CBSE, Delhi 2003)
Or
Distinguish between ‘increase in demand’ and ‘increase in quantity demanded’ of a commodity.
[(CBSE, Delhi, 2010 (I)]
8. Distinguish between ‘decrease in demand’ and ‘decrease in quantity demanded’ of a commodity.
[(CBSE, Foreign. 2010 (II)]
9. How is the demand of a commodity affected by changes in the price of related goods? Explain with the help
of diagrams. (CBSE, Delhi, 2005)
10. Explain the effect of a rise in the prices of ‘related goods’ on the demand for a good X.
(CBSE, Sample Paper, 2010)
Or

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Explain how demand for a good is affected by prices of its related goods. Give examples. [(CBSE, Delhi, 2011,
2014 (II)]
11. Goods X and Y are substitutes. Explain the effect of fall in price of Y on demand for X.
(CBSE, Delhi, 2013)
12. Explain the meaning of normal goods and inferior goods.
(CBSE, Delhi, 2004, 2013)
13. Distinguish between a normal good and an inferior good. Give example in each case.
(CBSE, Delhi, 2000)
14. Distinguish between complementary goods and substitute goods.
15. What is ‘market demand’? State four factors causing ‘increase’ in market demand. (CBSE, Sample
paper, 2014, Delhi 2014 (III), Delhi Compt. 2015)
16. What happens to the demand of a good when consumer’s income change?
[(CBSE, Delhi, 2014 (I)]
17. How does change in price of a substitute good affect the demand of the given good? Explain with the help of
an example. [(CBSE, All India, 2014 (II)]
18. How does change in price of a complementary good affect the demand of the given food? Explain with the
help of an example. [(CBSE, All India 2014 (III)]

Long Answer Type Questions (6 Marks each)

1. Define demand. Explain any 4 factors that affect demand for a commodity.
2. Explain the law of demand with the help of an imaginary schedule and diagram.
3. Explain the causes behind law of demand. (CBSE, Delhi Compt. 2005)
OR
Why is there an inverse relationship between the price of a commodity and its quantity demanded?
(CBSE, All India, 2000)
4. Distinguish between:
(i) Individual Demand and market Demand
(ii) Change in Demand’ and ‘Change in quantity demanded’. (CBSE, Delhi, 2007)
5. Explain in brief, the various exceptions to law of demand.
Or
Briefly discuss the various situations for positive relationship between price and quantity demanded.
6. Explain the causes of a rightward shift in demand curve of a commodity of an individual consumer.
(CBSE, Delhi, 2009)
7. Explain with the help of diagrams, the effect of the following changes on the demand of a commodity:
(i) Fall in the price of substitute good
(ii) Fall in the income of its buyer. (CBSE, Delhi, 2004)
8. Distinguish between an inferior good and a normal good. Explain the effect of change in income on each,
giving suitable examples. (CBSE, Sample Paper 2008)
9. Explain with the help of diagrams, the effect of the following changes on the demand of a commodity:
(i) An unfavourable change in taste of the buyer for the commodity
(ii) A fall in the income of its buyer, if the commodity is inferior.
(CBSE, Foreign 2004)
10. Explain causes of leftward shift in demand curve of a commodity.
(CBSE, Delhi, 2009)

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11. A consumer consumes good ‘X’. Explain the effects of fall in the prices of related goods on the demand of ‘X’.
Use diagrams showing for good ‘X’ on the x-axis and is price on y-axis. (CBSE,
Delhi, Compt. 2006)
12. Explain how do the following influence demand for a good:
(i) Rise in income of the consumer.
(ii) Fall in prices of the related goods. (CBSE, Delhi, 2012)
13. Explain the relationship between:
(i) Prices of other goods and demand for the given good
(ii) Income of the buyers and demand for a good. (CBSE, Delhi, 2013)
14. Explain the effect of the change in the prices of related goods on the demand for a given good.
(CBSE, All India Compt. 2015 (II)]

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