Demand for Consumer Good and 

It’s Determinants 
Introduction:
Demand for a commodity is the desire to buy a commodity backed with
sufficient purchasing power and the willingness to spend. Demand refers
to different possible quantities to be purchases at different possible
prices of a commodity.

Concept of consumer good and demand:

Consumer goods are bought by consumers. Consumer goods are
characterized by having a direct demand as they directly satisfy the
needs of consumers. (More to add)

Law of Demand and Demand Curve

The law of demand states that, other things being equal, quantity
demanded increases with a decrease in own price of commodity and vice
versa, i.e. there is an inverse relationship between quantity demanded of
a commodity and its own price, other things remaining constant.
A demand curve is a graph that shows the relationship between the price
of a good or service and quantity demanded within a specified time
frame.
From the figure above we can notice that, at point A, when the price is 9
units, the quantity of demand is 0 but at point D when the price is 6
units, the quantity of demand increases to 6. This shows the inverse
relationship between Demand and price that as price increases, demand
decreases and vice versa.
Assumptions of the Law of Demand
The law of demand holds goods when “other things remain the same”.
Here, other things refer to other factors, other than own price of the
commodity. Thus, other things remaining constant manes that,
 Tastes and preferences of the consumers remain constant
 There is no change in income of the buyers
 Prices of the related goods do not change
 Consumers do not expect any significant change in the
available of the commodity in the near future
Reasons for why the Demand Curve slope downwards is as follows:-
1. Law of Diminishing Marginal Utility: According to this
law, as consumption of a commodity increases, marginal
utility derived from each successive unit goes on
diminishing. Accordingly, for every additional unit to be
purchases, the consumer is willing to pay less and less price.
2. Income Effect:- Income effect refers to the effect on quantity
demanded when real income of the buyer changed owning to
change in price of the commodity. With a fall in price, real
income increases. Accordingly, demand for the commodity
expands.
3. Substitution Effect:- Substitution effect refers to
substitution of one commodity for the other when it becomes
relatively cheaper. Thus, when own price of Commodity-X
falls, it becomes cheaper in relation to Commodity-Y.
 Accordingly, X is substituted for Y. It is expansion of
demand (For commodity x) due to substitution effect.
4. Size of Consumer Group:- When price of a commodity
falls, many more buyers can afford to buy it. Accordingly,
demand for the commodity expands
5. Different Uses:- A good may have several uses. Milk, for
example, is used for making curd, cheese and butter. If price
of milk reduces, it will be put to different uses. Accordingly,
demand for milk expands.
Exceptions to the Law of Demand
Law of demand has some exceptions as well. There are some
commodities whose demand expands when their price rises and
contracts when their price falls. In such situations, the demand curve
slopes upward from left to right. Following are some notable exceptions
to the law of demand.
1. Articles of Distinction: According to Professor Veblen,
certain goods are ‘articles of social distinction’. These goods
are demanded only because their prices are very high. If their
prices fall, they will no longer be considered as articles of
distinction and their demand will shrink. Thus, these goods
defy the law of demand.
2. Giffen Goods: Giffen goods are highly inferior goods,
showing a very high negative income effect. As a result, when
price of such commodities falls, their demand also falls, even
when they happen to be relatively cheaper than other goods.
This is popularly known as ‘Giffen Paradox’
3. Irrational Judgement: Law of demand fails when consumers
judge the quality of a commodity by its price. It is an
irrational judgement. Perhaps it is owning to a huge price
difference between ‘organic’ and ‘non-organic’ products in
the market that richer sections of the society consider organic
 products as of very high quality. Accordingly, quantity
demanded of these products has tended to rise even when
their prices are extremely high
Slope of Demand Curve
Demand curve normally slopes downwards, indicating negative
relationship between price of commodity and it’s quantity demanded.
Slope of demand curve is estimated as (-) Delta P/Delta Q. It shows the
ratio between change in rpice corresponding to a unit change in quantity
demanded of a commodity. Negative sign indicates the inverse
relationship between price and quantity demanded of a commodity .
Demand Schedule
Demand schedule is a table showing different quantities of a
commodity to be purchases at different prices of that commodity.
According to Samuelson “The table relating to price and quantity
demanded is called the demand schedule” The concept of demand
schedule includes:-
 Individual Demand Schedule
 Market Demand Schedule
Individual Demand Schedule
Individual demand schedule refers to demand schedule of an
individual buyer/consumer in the marker. It shows quantities of a
commodity which an individual buyer will buy at different possible
prices of that commodity, at a point of time.
 The above table shows that as the price of ice cream increases,
quantity demanded tends to decrease, when price is 1 rupee per
unit, the consumer demands 4 units; when price rises to 4 rupees
per unit, the quantity demanded decreases to 1 unit. Thus, there is
an inverse relationship between own price of commodity and its
quantity demanded.

Market Demand Schedule

In every market, there are several consumers of a commodity. Market
demand schedule represents demand for a commodity by all the
consumers in the market. It shows different quantities of a commodity
which the consumers intend to buy at different possible prices of that
commodity, at a point of time. On assumption that there are only 2
consumers/buyers in the market.

The above table shows that when price of ice cream rises, it’s market
demand falls. For example, when price is 1 rupee per unit,
A’s demand=4units and B’s demand=5units. Therefore, the total market
demand at 1 rupee is 9 units (4+5=9). But when the price rises to 2
rupees per unit, then market demand falls to 7 units. Thus, the inverse
relationship between own price of the commodity and its quantity
demanded is established in case of market demand as well.
Demand Curve and its Slope
Demand curve is a graphic presentation of demand schedule expressing
the relationship between different quantities of a commodity at different
possible prices. Like demand schedule, concept of demand curve
includes:
 Individual Demand Curve
 Market Demand Curve
Individual Demand Curve
Individual demand curve is a curve showing different quantities of a
commodity that one particular buyer is ready to buy at different
possible prices of the commodity at a point of time.

Demand curve sloped downward from left to right indicating inverse

relationship between own price of commodity and its quantity
demanded. Higher price leads to a fall in quantity demanded, lower price
leads to a rise in quantity demands of a commodity.
Market Demand Curve
Market demand curve is the horizontal summation of the individual
demand curves. It shows various quantities of a commodity that all the
buyers in the market are ready to buy at all different possible prices of
the commodity at a point of time.

X and Y are two buyers in the market. The first figure is X’s demand
curve and the second figure is Y’s demand curve while the third figure is
the market demand curve. When the price is one rupee, X’s demand=
5units and Y’s demand=6 units. Therefore, the market demand= 9units
(5+6). Likewise, when the price is three rupees, X’s demand=3units, Y’s
demand=4units. Therefore, the market demand=7units (3+4).
Market demand curve also slopes downward showing inverse
relationship between own price of the commodity and it’s quantity
demanded.
Factors affecting the demand of consumer goods
Demand function or Determinants of Demand shows the relationship
between demand for a commodity and its various determinants. It shows
how demand for a commodity is related to, say, own price of the
commodity or income of the consumer or other determinants.
Corresponding to two aspects of demand, viz, individual demand and
market demand, we have two types of demand function:
 Individual Demand Function
 Market Demand Function
Individual Demand Function
Individual demand function shows how demand for a commodity by an
individual consumer in the market, is related to its various determinants.
It is expressed as under:
Dx= f(Px, Pr, Y, T, E)
Dx= Quantity demanded of Commodity-X
Px= Own price of commodity
Pr= Price of related goods
Y= Consumer’s income
T=Consumer’s tastes and preferences
E=Consumer’s expectations
1. Own Price of Commodity: Other things being equal, with a rise in
own price of the commodity, its demand contracts and with fall in
its own price, the demand extends. This inverse relationship
between own price of the commodity and its demand is called Law
of Demand
2. Price of Related Good: Demand for a commodity is also
influenced by change in price of related goods. These are of two
types:
(a)Substitute Goods: These are the goods which can be
substituted for each other, such as tea and coffee or ball
pen and ink-pen. In case of such goods, increase in price
of one causes increase in demand for the other and
decrease in the price of one causes decreases in the
demand for the other. Increase in price of orange juice
for example, would increase the demand for apple juice-
the consumers will shift from consumption of orange juice
to the consumption of apple juice.
(b) Complementary Goods: Complementary goods are
those goods which complete the demand for each other,
and are, therefore, demanded together. Example, Pen
and ink, Bread and butter. In case of complementary
goods, a fall in the price of one causes increase in demand
for the other and a rise in the price of one causes decrease
in the demand for other. For example, if the price of bread
increases, the demand for butter will also fall, similarly, If
the price of bread falls, the demand increases and
simultaneously increases the demand for butter.
3. Income of the Consumer: Change in the income of the consumer
also influences his demand for different goods. The demand for
normal goods tends to increase with increase in income, and vice
versa. On the other hand, the demand for inferior goods like coarse
grain tends to decrease with increase in income, and vice versa.
4. Tastes and Preferences: The demand for goods and services also
depends on individual’s tastes and preferences. Tastes and
preferences of the consumers are influenced by advertisement
change in fashion, climate, new inventions, etc. Other things being
equal, demand for those goods increases for which consumers
 develop strong tastes and preferences, Contrary to it, if taste or
preference for a product is fading, it’s demand will increase.
5. Expectations: If the consumer expects a significant change in the
availability of the concerned commodity in the near future, he may
decide to change his present demand for the commodity.
Particularly, if the consumer fears acute shortage of the commodity
in the near future, he may raise his present demand for the
commodity at its existing price.
Market Demand Function
Market demand function shows how market demand for a commodity
is related to various determinants. Or, it shows the relationship
between market demand for a commodity and its various
determinants.
It is expressed as under:
Mkt. Dx= f (Px, Pr, Y, T, E, N, Yd)
Mkt.Dx= Market demand for commodity-X
Px= Own price of commodity
Pr= Price of related goods
Y= Income of the consumers
T= Tastes and perfrences of consumers
E= Expectations of consumers
N= Population size/number of buyers
Yd= Distribution of income
1. Population Size/Number of Buyers: Demand increases with
increase in population and decreases with decrease in
population. This is because with the increase (or decrease) in
population size, the number of buyers of the product tends to
 increase (or decrease). Composition of population also
affects demand. If composition of population also affects
demand. If composition of population changed, e.g. female
population increases, demand for goods meant for women
will go up.
2. Distribution of Income: Market demand is also influenced
by change in the distribution of income in the society. If
income is equitably distributed, there will be less demand. In
the latter case, more income will concentrate with the rich.
Large sector of the society will be poor and because of its
low income, market demand will also be low.
Statistical Data
“Petrol and diesel prices were today cut by Rs.2 per litre each as
international oil prices slumped into five-year low. This is the eighth
straight reduction in petrol prices since August, and fourth in diesel
since October. New rates will be effective midnight tonight, Indian Oil
Corp, the nation’s largest fuel retailer, announced here. In Delhi, petrol
will cost Rs.61.33 a litre, the lowest in 44 months, as compared to
current price of Rs. 63.33. The price has been cut by Rs.2.09 a litre in
Mumbai to Rs.68.86. rates differ from state to state because of varied
rates of lock sales tax or VAT.”