Demand- Meaning and

Determinants

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 Demand- Meaning and Determinants

Demand- Meaning
Desire to buy Ability to buy Willingness to buy

Demand
 Demand- Meaning and Determinants

Demand may be defined as “ the quantity of

goods or services desired by an individual,
backed by the ability and willingness to pay”.
Substitute goods

Substitute goods are commodity which the consumer demanded to

be used in place of another good. Economic theory describes two
goods as being close substitutes if three conditions hold:
products have the same or similar performance characteristics.
products have the same or similar occasion for use
products are sold in the same geographic area
Direct Substitute Examples
Pepsi and Coca-Cola
McDonalds and Burger King
Supermarket-branded and Branded products
Transport by Car or Train
iPhone and Samsung Galaxy
Pizza Hut and Domino’s
Physical Books and Kindle
In-direct Substitute Examples
Dancing and bowling
Bowling and Video games
Banana and Doughnuts
Complementary goods

Complementary goods are those goods which are used together to

satisfy a given want. They are demanded jointly, e.g., car and petrol,
pen and ink. In case of complementary goods, an increase in the
price of one good causes a decrease in the demand of the other good.
Normal Goods

A normal good is a good that experiences an increase in

demand due to an increase in a consumer's income.
Normal goods have a positive correlation between income
and demand. Examples of normal goods include food,
clothing, and household appliances
Inferior Goods

An inferior good is a type of good whose demand declines

when income rises. In other words, demand of inferior
goods is inversely related to the income of the consumer.
 Demand- Meaning and Determinants

Types of Demand
1. Individual- The quantity of a commodity which an individual is willing to buy at a particular price during a specific time
period, given his money income, his taste and price of other commodities is called individual’s demand for commodity.

2. Market Demand- The quantity which all the consumers of a commodity are willing to buy at a given price per time unit, given
their money income, his taste and price of other commodities is called individual’s demand for commodity.

3. Firm’s Demand- The quantity of a firm’s product that can be disposed of at a given price over a time period.

4. Industries Demand- The aggregate of demand for the product of all the firms of an industry.

5. Autonomous Demand- Arises on its own due to natural desire to consume or possesses a commodity

6. Derived Demand- Arises because of the demand for some other commodity.
 Demand- Meaning and Determinants

7. Demand for Durable goods : Goods that does not quickly wear out or, more specifically, one that
yields utility over time rather than being completely consumed in one use.

8. Non- Demand for Durable goods: Goods that are immediately consumed in one use or ones that have a
lifespan of less than three years.

9. Short term Demand- Demand for goods that are demanded over a short period

10. Long term Demand- Demand which exists over a long period.

11. Price Demand- The amount of a commodity which a person is willing to purchase at a particular price.

12. Income Demand- The amount of a commodity which a person would purchase at a given level of income.

13. Cross Demand- When demand of a commodity depends not on its own price but also on the price of other
commodity.
 Demand- Meaning and Determinants

Key Points

• In oligopolistic market structure, a distinction between the demand for a firms' product and for the
industry’s product is useful from the managerial point of view

• Autonomous demand is also known as direct demand

• Demand for complementary or supplementary goods is derived demand.

• Durable goods create replacement demand whereas non durable goods do not

• Demand of superior goods is directly related to income but in case of inferior goods this relationship
is inverse.
 Demand- Meaning and Determinants

Determinants of Demand
Climatic
Conditions
Price of
Government
product
Policies

Demographic Determinants Price of

Conditions related goods

Consumer’s
Wealth of a Income
consumer Taste &
Preferences of
consumer
Law of Demand
Part 1. As PRICE increases, DEMAND decreases

Demand goes
Price goes up

down
THEN

Part 2. As PRICE decreases, DEMAND increases

Price goes

Demand goes
down

THEN

up
Demand Curve

A graph that illustrates the demand for a product

It shows how much consumer desire for a product changes as the price changes
Market Demand Curve: This curve illustrates the quantities of apple
juice demanded at each price ay all consumers in the market.

Price of a Quantity
bottle of demanded per
Apple Juice week
20 800
25 650
30 500
40 350
45 200
50 50
 Elastic Demand
If Demand for a good is very sensitive to changes in price, the demand is ELASTIC
Or
If prices changes a little bit, demand will change a lot!
Example of Elastic Demand

Price of pizza goes up even a little bit, demand goes down a lot.
Inelastic Demand

Demand for a good that consumers will continue to buy despite a price increase is
INELASTIC
OR
Even if price changes a lot, demand changes very little
Example of Inelastic Demand

The price of soap goes up a lot, the demand stays almost the same.