V t
V
DEMAND AND LAW OF
.. DEMAND
CHAPTER
2.1 INTRODUCTION ° Paul A. Samuelson (1915-2009)
The fundamental question which economic theory
seeks to explain is: why is that goods command
prices and why some goods are expensive while
others ar~ cheaper. The broad answer to this
question is that goods have prices because, on
the one hand, they are useful and, on the other
hand, they are scarce in relation to the amount
which people •would like to have. People will not
be prepared to pay a price for the goods unless
they are useful to them. Similarly, goods may be
very useful, but if they are freely available in an
unlimited amount, they cannot command a price.
For example, air is very useful to us, but it is not
scarce, and hence, it cannot command a price.
Goods like air, which are the gifts of nature, are
- known as 'free goods' and they do not have a priff.
By contrast, economic goods are scarce and they
command a price. Thus, economic goods have a
price because they are useful as well as sc~ _in
their availability. It is only because economic goods
are useful- that they are demanded by people,
and only because they are scarce that sellers are
prepared to sell them at a price.
But usefulness and scarcity are only the
underlying forces. Usefulness expresses itself
in the form of demand by buyers, and scarcity
expresses itself in the form of supply by sellers.
Therefore, prices of goods and services in a
free enterprise economy are determined by the
interaction of forces of demand and supply. In
factI demand and supply are the two important
tools of economic analysis. That is why it was said
long time back that you can turn even a parrot
into an economist, all he must learn are the two
words 'demand' and 'supply'. This humour has
an,
:,
-
du1
thi:
';-
.,
Paul Samuelson was an American
economist at the Massachusetts
Institute of Technology (popularly
. known as MIT), who became the
first American to receive the
Nobel Prize in Economics in
1970. Professor Samuelson is
often considered as the father of
modem economics. He became ··
the most influential and the foremost economist
of the second half of the 20th century. ·He
made fundamental contribution to econ~mtics
science for over 60 years in the fields' of
welfare economics, public finance, intemati~nal
economics, macroeconomics, consumer theory, etc.
He was the author of the best-selling economics
. textbook of all time entitled Economirs, An ,·
Introductory Analysis (1948). This book has .sold
nearly 4 million copies in 41 languages. Through
this book, Samuelson has introduced millions of ' ,
people to the subject of economics. He also he~ped
building MIT into one of the world's great centr~
of graduate education in economics. · .
. - • ~
been handed down for decades in introductory
economics courses. While not literally true, it does
point out how central the concepts of demand and
supply are to economic analysis.
In this chapter, we will explain the various
facets of demand. The factor of supply and its
related facets will be taken up in a later chapter.
2.2 MEANING OF DEMAND
Demand for a commodity refers to the qu~ es
of a commodity which consumers are w!J!E'g

and able to purchase at various possible l!_rices
during a particular period of.J'!!!!!-
- The following remarks need to be noted in
this definition of demand:
1. In common language, the terms 'demand'
and 'desire' are used to convey the same
meaning. But in economics, demand for
a commodity is not the same thing as
desire for it. Demand refers to both the
desire to purchase and the ability to pay
for a commodity. It is only when desire is
backed by the willingness and power to
pay that gives rise to demand. In other
words, demand is an effective desire, i.e.,
a desire accompanied by the willingness
to purchase and power to purchase.
Thus, a desire to buy a good backed by
willingness to pay and ability to pay
becomes effective demand. For instance,
I may have the desire for a car, but it
will become demand only when I have
the adequate money and I am willing to
spend that money to purchase that car.
2. Demand in economics is always at a price.
It makes no sense if it is not related to a
price. For example, we may be willing
to purchase a shirt if it is available for
~500, but we may not buy it at all if
the shirt is priced at ~800. Moreover,
different quantities of a commodity will
be d~manded at different prices. Therefore,
demand is always expressed in relation to a
particular price. For a given price, demand
tells us a specific quantity that consumers
are willing to purchase at that price.
3. Thirdly, demand is always expressed with
reference to a particular time period. For
example, demand for a car will be quite
different if the period in question is one
day, one. week, or one year. Demand is a
flow corn;ept. Flow is any variable which
is expre'§ sed per unit of time. We must
always express demand as so much per
period of time, e.g., 200 cars per day, or
1400 cars per week, or 73,000 cars per year.
Thus, demand does not refer to a single
isolated purchase, but to a continuous
flow of purchases.
DEMAND AND LAW OF DEMAND
· 200, it
that demand for a car is
Thus, if we say d and is
. . com lete statement. The term em .
is an in less without reference to the pnce
totally meaning . . d Demand makes a
the relevant time per10 .
and nly when we refer it to some
complete sense o .
price and the time penod.
2.2.1 Types of Demand
The demand for various goods can be classified
on the basis of the number of consumers of a
product, nature of the goods, interdependence of
demand, nature of the use of the proc;:luct, etc. We
have discussed here five major types of demand,
namely individual and market demand, ex _ante
and ex post demand, joint demand, derived
demand and composite demand.
1. Individual Demand and Market Demand:
We may consider the demand for a
commodity from the individual's point
of view or from the market's point of
view. Individual demand refers to the
demand for a commodity by a singre
consumer. Thus, individual demand refers
to the quantities of a commodity that
an individual consumer is willing to
purchase at various E,rices during a g_iv=;n
period of time. An individual consumer
is called a household in economics.
Therefore, individual demand is the same
thing as household demand. For instance,
the quantity of milk purchased per day
by your mother is individual demand
for milk.
The sum total of demand by all the
households or individuals is known
as the market demand. Thus, market
demand refers to the total quantities of
commodity ibot all the bouseba¼ ..are
.fl
will_ing to buy at various prices during
a given period o f time. For instance
total quantity of milk which all th;
bu_yers are _w illing to buy at a given
pnc: per day (or over any other period
of hme-week or month) is the market
demand for milk.
9

f t x a11te and Ex post Demand: Ex ante.
demand refers to the amount of goods
that consumers _wan_t fo of w"i!!_j]jg]ovuy
-during a particul~ -~i!!!~ pe~o~. __!! _~_fu.e
pianned or de~~ e~ ~t of de~~d.
tx po st "dema!!._~ th~ other _ha?a,
refers to the3 mount__of _£'!..~~ !hr'1t
the consumers actually purchase dunng
a specific period. It 1s the amount of fne
0 / composite Demand: Demand for goo! s
goods actually bough_t. The amount of
Th.e goods actually bought is not the same
as the amount that the consumers want
(desire) to purchase. If the commodity
is not available in adequate quantity,
the quantity actually purchased (ex post
demand) will be less than the quantity that
the consumers desire to purchase (ex ante
demand). Thus, consumers may end up
buying more, or lesser quantity of goods
that they had planned to buy.
-..Y}oint Dem.and: Joint demand refer~__t(!
the dem!!nd f or ·two or more S,£.O,ds wh ffh
are used ioint!Y_ or dema_!!-de_d t<!.8. ether.
For '"ex~ple:~~c~ s andp~oi ~tt;r: iiici
~.?.-.':!~ ~ug~r, ets-.,_,are the ~ ods
w~ ~ - USE;d ~ g~ e.r. The demand for
the goods having joint demand changes
simultaneously. For instance, an increase in
the demand for cars leads to a simultaneous
~~e.J!l. . .the demand f,m-""'2~trp\ .cJ-1?.~!lL. 2.3 DETERMINANTS OF DEMAND/
In case of jp..,int demand, a rise in the price
- -~
of one good leads to a fall in the dem~d
..--...:•'-" . .,... . ~.~,..~---·-
for the ot,!ter good and vice versa.· For
....._... .......
example, a rise in the price of cars witl lead
to not only a fall in the demand for cars · as the determinants of demand. We can look at
}-ut also a fall in the demand for petrol.
J- Derived Demand: The demand for a
commodity...J_hat arises because of the
some_gther .~!!!.'!!~. .~}!f_{s
called derived demand. For instance
demand ,-forsteeL bricks,' cement, stone~,
_ __,,--:---
=~•--- . .
I
w ood, etc. is a derived demand-deriv ea
- -~--::-·
E_om the d,Wlan d for houses
. . " - -an
- d...._o_th,..er
building!, The demand for these goods
arises because of the demand for houses
and other buildings.
10
Derived demand generally relates to
the demand for factors of production.
Demand for factors of production such
as labour, is derived from the demand for
the goods produced with these factors of
production. For instance, the demand for
labour in a textile mill is derived from
the demand for the cloth produced by the
labour.
that have multiple uses is called composite
deman~ Fo~ exame!.£, tp~_ _geman,g__for
~
steel arises f rom various uses of steel
.,.,. ~ _,, _ , · ............. ~ 1 .
.•e.s».' l§~ ,?t..ste~ - !D~_g .!!t~ ils,
~ & ,. r~1!!.,.c oolers, cars and so
-
on. Thus, a commodity is said to have
c omposite demand when it can be put
to several alternative uses. In the case of
composite demand, a change in the price
of such a product would lead to a large
change in its demand because its demand
for all the uses would change. Moreover,
an increase in the demand for the product
in one use decreases its availability for
another use. For example, an increased
demand for electricity for domestic use
would reduce the availability of electricity
1
for commercial use.
\
l-
FACTORS AFFECTING DEMAND
The factors that influence the decision of
household~ to pur0 _ase a commodity are known
the determinants of demand as well
as the market demand.
. While purchasing a shirt, you might have been
influenced by a number of considerations-the
~ount of money you want to spend on a shirt,
pnce of the shirt, your liking for the shirt fashion,
etc. This is the case with everyone. ~emand
for any particular commodity is influenced
by a large variety of factors, namely price of
the commodity, prices of other commodities,
FRANK ISC ECONOMICS-XII

consumers' income, the taste of the consumers,
advertisement, demonstration effect, expectation
about future prices, size of the population, ·
wealth, distribution of income, government
policy, etc. We discuss below some of the
important determinants of demand for a
com~ dity:
¥ _Pri ce of the Commodity: The most
r j I y~ portant dete~mi~ant of the demand
'""'· n\),J 1 · ~ , ~or a commodity is the price of the
V ._ etJ,~ommodity itself. Normally, there . is an
~f{\ · inverse relationship between the price
of the commodity and its quantli_y
demanded. It implies that lower the
price of the commodity, the larger is the
quantity demanded; and the higher the
price, the lesser is the guan~ purchas~ .
You must have observed your mother
purchasing more quantity of apples as the
price of apples falls. This e of demand
is known a rice deman Thus, ~rice
demand refers to di erent QJ,-lantif s of
a commodity which are purchased at
different prices) We shall ~xplain this in
~tail under the Law of Demand. . suostihrteil by -~ Re£ioi:.cer~ctls.Jike
~ ncome of the Con sumer: Income of
the consumer is the basic determinant
of the quantity demanded of a product
as it determines the purchasing · power
of the consumer. Generally, there is a
direct relationship between the income
of the consumer and his demand for a
product, i.e."°"with an increase in in.s ome,
the demand for the com,2!l..9dity increag s.
However, this may ~ot always be the case.
While discussing the relationship
between income of the consumer and
the demand for a commodity, we may
distinguish between three types of goods:
(i) normal goods, (ii) inferior goods,
(iii)' ~ xpensive necessities Qf life.
$ Normal goods (NG): Normal K2_Eds
are those goods the demand for which
increases with increase in incom_l;_,
of the consumers, and decrea~ ~s
" with fall in income._So, there is
a positive relationship between
DEMAND AND LAW OF DEMAND
d the quantity
consumer's income an
demanded. There is a whole range
. h purchase
of products w h ic we . .
in larger quantities as our mcome
.
nses. For instance, _ _a consumer
_ _ _may
fi __,...
.increase
- _h·s "::J emana for C1ot es,
1_ ......u ··--
refrigerators, television sets ~ d c~s
as his incom_! ~ creases. As a matter
cl fact, articles of comforts and
luxuries belong to this category
of normal goods. As . our income
increases, we can afford to purchase
a larger quantity of these goods.
J4{ Inferior goods (JG): Inferior gooq,s
are those goods the dem!!:n.~ /qr
w hich falls with increase in incom~
of the consumer. ~ _ the! e i_s_ an
inverse relationship £~tween inco~e
of the consum;; ~nd the d~m-~nd
fo~ i; fur[2i__g'g-;-,r§~°F or . example,
the demand for coarse cereals. ~like
maize or jowar may decrease -when.
income increa~;~~~12articular
level o ecause- the__q >p.,sum_er_s_may
whTatorri~e. For example, coarse
~ s an.ac:'oarse cloth are inferior
goods. Consumers will purchase
more of these goods at lower level
of income. At low levels of income I
increase in income of the consumers
is accompanied by increase in the
demand for these commodities. ·
However, once a certain level of
income is achieved, further increases
in income are accompanied by
a fall in the demand for these
commodities as consumers shift to
superior products.
~nexpensive necessities (IN): In case
of inexpensive necessities of life such
as salt and matchbox, _the quantity ·
~ rchased increases with increase
..inincome·~p t~~ certain .level
... and thereafter it remains constant
irrespective of the levei of inco"ii;e.
lp~-ismv i~ f the fact "tilaf"t&re
-
11
 is an upper limit to the ~on~umfilion
oTsuch goods.
This functionairelationship between the
d~and for a commodi and the level
of •income is known_ s income demand
The inco~ e demand s ows how much
quantity of a commodity a consumer will
buy at different levels of his income.
As explained above, the effect of changes
in consumer's income will be different
.for normal goods, inferior goods and
inexpensive necessities. The relationship
between income and the demand for
different types of commodities can be
illustrated with the help of Fig. 1.
y
Y2 i - - - - - - - - - - - -- - k
Q)
E
0 '!;anging, le~ g to.change in cons~ ers'
(.)
C:
01 . 02
Quantity demanded
Fig. 1~ on between Income and Demand
In Fig. l, i.J;lcome of the consumer is
plotted on the · Y-axis and the quantity
purchased of a commodity is plotted on
the X-axis. The nature of relation be~een
~ncome and demand for normal goods
1s shown by the curve .NG • The
· curve
NG has a positive slope, i·e•, 1-t m oves
upwa: d } .o the riajlt, i~ at_!ni t!].at
~eman~ ~~,;-!~~-g-oods ~ reases. with
~ cr~~se m, 1Il£ Op.e,.of athe consumer. The
relation between income and de;;- d f
. d. h
infenor goo 1s s own by the curve IG .
Fig. 1. Demand for such good - m
... 11 mcrease
rmtiauy ' wim :r
increase In
• income
m -
( s_a_y_u_p_ t_o _Y_1_1_ev_e_l_o_f_in
_co
,_m
:;;.t ~ 1!en .9Qi
12
~tity_is_.Q.~I!l~ded), but th~ quantity
.~ _emand_ed decreases as ~come inc~es
, beyond Y_t:_The relation between income
and inexpensive necessities of life is shown
by the curve .It:L,,...,A s the curve shows,
a consu1n:~r's demand for ~essities
i1:,.crea~E... a~ up lo5y2
At_O~ lev~ of in~ e!. ~ e quantity
~man4!?P_,l§.....0 Q.2 • Seyond OY~ vel
of_income, IN curve becomes a vertical
.
straight line, ind~5:_ a_!ip g_J_h~ t a_j_tyjher
---increase in' __ iD,<;Q!lle does not lead to any
in,2:easejn demand.
i,),,.,,(;n sumers' Tastes and Preferen ces:
The level of demand is influenced also
by the tastes and preferences of the
consumers. Tastes and preferences depend
on social customs, habits of the people,
fashion, general . lifesty..!z_ of the__ ~o_ple,
advertisemen,1 p ew..E2Y~!1tJ.<2..~2, ~ - ~ e
~f these factors like fashion kee:e~on
tastes !E.,~_£ references. As a result, the
d~131and for different goods changes. People
.switch over from the cheaper old-fashioned
~oods to costlier '7!!-od' goods. The physical
fitness craze leadl'ri'g'toan increase in
demand for i~..,~_?ther ·example.
~ ated Goods: The de; - and for
X
a commodity is affected by the prices of
related goods is as well. Related goods can
be
. classi·fied mto
· two categories, namely
subS ti tute or competitive goods cll)g.'..
(~lementary goods. ....,. --
, · SubS t itut~ goods: Substitute goods
~ e th'!s! hKEO~ -wh j ~e
.., same typ_e 01 need and hen~e can
be ~sed. .i!J_,11.lace ...q/-i111£_a,tMJ.ther to
satish,
~ -a ftJ:l,J. Tea and coffee,
oi7u>.. -r..
~U,-J,Y
·coke a nd ;eep si are examples of
_substitu te goods. There · · • is a direct
-
_relationship b~tween the demand
an or fo~ a product (say tea) andjhe
pn~e ~f its substitute (say
.s may
=
as rnd1 cated by positively sloping ·
curve KL in Fig. 2(i). For example, if
the pnce
· o f coffee rises from OPO to
FRANK ISC ECONOMICS-XII ---
 y
o o d s:
, ..
---~-g--riiose
o mp l e_m e n ta_r y
J14') Complementary_ ·g_oods are ..
L goods which are complem_,~nta~!0
Q) -one another
- _-.--in the sense th a tth1n1are
:::z. - .
&0
u p1 r - - - - - - - , ( used jointly_g_r consumed together.to
.....
0 satisfy_ a gtpen wa'!t like car an_d
.gPor------7"" petrol, gas and gas stoves. There is
a..
an inverse relationship between the
K d emand for a good an9_ tpe e rice
&
..2! F~ E\ent. The nature of
relationship between the de.ma nd
for a commodity (say car) and
price of its complement (petrol) is
represented by a downward sloping
HR curve, as shown in Fig. 2(iz). Here,
H the demand for cars varies inversely
..d eQ) with the price of its complementary
a.. good-petrol. This ynplies_t!t~LJ~
0Q) p r----~ increase (or d~ rease) in the p rice of
1
(.)
petrol causes a decrease (or in9"ease)
ct p0 t------t'-----,.. in the demand for cars. For instance,
an increase in the price of petrol
R from OP0 to OP1 causes not only a
QL..-------=----=:-----~
0 ,. 0 X
decrease in the demand for petrol,
0 but it also causes a decrease in the
~ and for Cars
~ omplementary goods
demand for cars from OQ0 to OQ1,
as indicated by negatively sloping
Relation between Price and Demand for
Related Goods curve HR in Fig. 2 (ii). Thus, in case
of complementary goods an increase
OP while the price of tea remaining in the price of one good decreases
sadi.e, many consumers will shift the demand for the other good.
from the consumption of coffee to The way demand the for one particular
the consumption of tea because tea _ product is affected by a change in _the
has now become relatively cheaper. price of another product is known as
As a result, the demand for tea will
the (goss dema~ r(iross price effiec!)]
increase from OQ0 to OQ1 and that The cross de'!lan~ -~ s the fy_ncti2.!Jal
of coffee will decrease. Here, the relation the ~rice ot a commodity
demand for tea has increased not _and the d~mand for some other related
because of a fall in its own price but ; ommodi~
due to an increase in the price of its
\Y.tonsun~ers' Expectations:(sonsumers'
substitute-coffee. We say that two expectations about such things as future
goods are substitutes if an_ ~ se gr~ces, i n ~ availability of goods, etc.,
1n the price of one good_increases play an important role in determinin,g,the
the demand for the other ~ - Thus, c3.eman? f2L,,goq4,..s _au,g . ser.,vi c~ ·iu-tbe
e emand for a commodity varies ~!~ent perio!;l. For instance, if consumers
directly with a change in the price of expect a rise in the price of a commQ4ity
its substitute. in .future, they would demand greater

DEMAND AND LAW OF DEMAND

-------------~-
amoun
- .
t of this commodity to~.ry~ ':Yi.!°!1 a
- - -~- - .- t hi her
to avoid Eurchasmg it a a g
view - -~ ·---:- .f 1 ect
rice in future. ,r,inularly, i peop e exp .
increase fn their income~ ~he~ will ,
buy more commodities in anticipation of
a rise in their .income. In the same w~y,
if consumers expect scarcity of certain
goods in future on acco~nt of their
expectation that its production may fall
in future due to strike, crop failure, etc.,
the current demand for such goods would
ycrease.
Consumer-Credit Facilities: If consum>rs
are able to get credit facilities or they
are able to borrow from the banks,
would-be tempt~d to purchase certain
goods th_ey could not have 12.ur~d
otherwise. For instance, the demand for
cars in India has increased partly because
people are able to get loans from the
banks to purchase cars.
/ r > emonstration Effect: Demonstration
I
effect plays an important role in
affecting the demand for a commodity.
, Demonstration effect re ers to the tendency
o a · !!~!lJ Q.t_m!!LqJ!., the C01!Juml!!jon
style o( other persons such as hi~.f.!iends,
'!!!8hbo!f~S, etc. F~r instance, the dem'!,lld
for luxury cars and expensive mobile
sets has increased in recent years partly
oecause of th~ desfreottfie . people to
follow the consume tion s~ le of_o_!~r~.)
The above-mentioned factors affecnhe
demand for a commodity by an individual
consumer. Since the market demand for
a commodity is the sum total of demand
by all the individuals for that commodity,
these factors are equally relevant for
determining the market demand. In
addition, the market demand also depends
upon the number of consumers, the
income distribution and the government's
policy. We discuss below these additional
,·,.,- factors aftertirJ.gJ}Jg_ WJV'ket_demand . .
=%'_ \.t 8. Size and Composition of Population:
J\ o}~ ~~~:.~ t _d! ~-< ! . ) ~ ~ ~ty
' \; clepends on the size and composition
or··the· popclation.
.
Tne
}JOPu1ation m e
14
of a co_?Titr_y determines the number of
c onsumers!.. The larger the population,
-the larger is likely to be the number of
consumers. __......-
An increase in the size of
..-.,L--~---- )
....P..?PU~J ti?n ~~11 incr~as~ the demand for
a commod~ty_by ~cre_asl!lg !1:~.~µµi ber of
..,~ ~ ~ vice versa. Compositi~n
of population also ~ff~ ts deman.d.
Composition of p o~ lation refers to the
various facets pf Bo:Bl!latio.11 like the my:nper
~f childr~ ~ u!s,, !!!al~s, females, ~ -, .m_
1!_,.~p_opulaJ.i,pn .. Com2~i~o1;_ o! p opulation
affects the denlanci b:~ause !?!.~ ~ of
goods ctemandea " by,j_iffer1;n t,p eople ~re
ffeey-
alierent. For
example, needs of young ~d
old males and fem,aJe.s, etc._differ. If the
nu~b~f t~ ers in the population of
a country increases, the demand for those
goods that teenagers tend t~ b_uy such
as jeans, cricket bats, etc. will mcrease.
These are the demographic effects on the
demand for different goods.
9. Distribution of Income: Distribution of
income in the country also affects_!he
demand for goods.ff the, distri!:>ution. of
income in a country !s- ~ eq1;1~ere will
be more demand for luxury goods ""qfe
cars and . LED televisions75n theother
hand, if th~~~;i~ eve'iuy distributed,
there ~l be less cte~~cr7or - fux'. u ry
- - - - - - -~ ~ _,,-_:,,-.. . ~__....,.~---a-.--.-
_goo~~ug,_me . ~~T,;~~.fu~ e_§se~tial
2 _o ods (necessities).
00C Ciimati~ Fact o~~: Demand for different
goods depend~ on the chmahc fa~t<JrS
6e cause different goods are needed
tord.Tffffent-~climates. For instance, tl;te
demand for ice, fans~ air conditioners;
£<?Id drinks, cotton- cToffis, etC:---~ih
summer. Likewise, in wmter, the demand
__.for heaters, blowers, hot drinks, woolen
cloths, etc. increases.
11. Government Policy: Economic policy of
the government also influences the demand
for commodities. If the government
imposes taxes on various commodities in
the form of VAT, excise · duties, etc., the
l
prices of these commodities will increase.
- As a result, demand for these commodities
will fall. But, on the other hand, if the
FRANK ISC ECONOMICS-XII
 government incurs more expenditure
,6s the size of population,
¥':,;rtands for the distribution of income,
1

on the construction of roads, bridges, in

setting up industries, etc., the demand
for the goods needed for construction will
mcrease.
it(./ is the government's policy. .
. . . all d demand function. It IS a
This equation IS c e d d
shorthand way of saying that quantity ~emanthe
depends on various determinants. It IS ~ 10d e; ,_
way of saying that the quantity deman e . o
0

~~~ants of Demand at a Glance

\Y. _jnce of the Commodity
jJlcome of the Consumer
·~ onsumers' Tastes and Preferences
~~rices of Related Goods
d onsumers' Expectations
6. f lnsumer-Credit Facilities
-..,,f".pemonstration Effect
..£.~ ize and Composition of Population
• .flistribution of Income
}ff Climatic Factors
11. Government Policy
',2:3:1 De-m and· Function
~ -- . ·-- .
As explained above, demand for a commodity
depends on a large variety of factors. This can
be expressed in the forin of a demand function.
A demand fu nction stat~ the relatio_n!J.iip
betwe~ th~_~ andf or a f!Todu,ct and its _variot;~
°determinants. It gives functiona1 relationship
~t:e::·at'tiseand effect relationship) ~etween the
·demand for a commodity and various factors
affecting demand. The algebraic expression of
the demand function is given in the form of the
follo~_?J1ation:
a commodity, which is ~n the left-h~~-~~~
depends on the variables listed on the ngh
.
side. In this demand fu nc t Ion, D n is treated
as dependent variable, and all the factors on
the right-hand side are treated as independent
variables. ·
2.4 LAW OF DEMAND
I~ icroeconomics or price theory, we are
interested in developing a theory as to
how commodity prices are determined. The
relation between demand and price occupies
the central place in this theory. The law of
demand shows a functional relationship
between the price and the quantity demanded
of a commodity. Law of demand is one of
the best known and most important laws of
economic theory.
2.4.-1-Stateme-nt iot:the :aiaW:
The law e%-
de ... ,tates-that, ~Jhit!gs
remainin , t e quantj_tJJ. df?.!!'anded '!/_'!.
commodity incr£.!LS!.,S 'fPbgp,3 ts price falls and
--d ecie~ its price rises. - ---rnd ,.
'-uzcww-14$1~
El t ,-

Thus, the law of demand indicates an inverse

~ =f <rn, ~1~·~n-ui,T, E, H, y ,dG••.) . relationship betwe~n the price and the quantity
demanded of a commodity. That is, with a rise

.r.
In the above equation,
denotes the demand for a particular
commodity 'n',
in price the demand will fall and with a fall in
price the demand will rise .

2.4.2 Assu_
n:-·gt!oris 1
/shows the functional relation between the
demand for the cOmmo dity 'n' and the factors The law of demand assumes that 'other things
affecting its demand, remain unchanged', i.e., assumption of Cderis paribus
is the price of commodity 'n', order. As stated above, demand for a comm&ffi?
--~ p , indicates the price of all other &f~nds not only on its price, but also on many
Y 1 ··· n-1
coill19'°dities, other factors like consumer's income, price of the
~).s the income, related goods, consumer's tastes ~d preferences,
..:,z, j'ttmds for the taste, etc. These other factors influencing the demand
'fl' stands for expectations, are assumed to be constant or unchanged.

DEMAND AND LAW OF DEMAND

15
Thus, the law of demand is based on the
following main assumptions:
y. There should be no change in the income
of the consumer.
y. 'f1!e! e !_hO_?~ ~~Eo change in the tastes
-
and. p references of the consumers.
,
Y. Prices of the related commodities should
- (f
- 100
remain un~clllged.
.J< The commodity should be a normal
~ ommoditx-
_a-:- Size of p2:gul'¾t,ion_shqyld,,nut..challg.e.
Jr. The distribntjon of io.C.Q!lle should not
change.
..;7. There is no expectation of change in pri~es
----- - - -- - -
in future. · - -·- •_..<-=~---mc -e-
The law of demand can be illustrated
numerically through a Demand Schedule and
g!aphically through a Demand Curv~.
_ _ Demand Schedule
24 3
A demand schedule is one way of showing the
relationship betw~n the price of a commodity and
its quantity demanded. The d~ and sc~edule is a
tabular statement that shows di.ffe§t q§nt~ ies
qf a commodity that would be ~emand~d at
diff!!rent.PJ:ice_s 4Ydn-Kn4 giy_CJ:Lpe!iod.
- Demand schedule is of two types, namely
(1) Individual demand schedule, and (2) Market
demand schedule.
1. Individual Demand Schedule: Individual
demand schedule is the table which shows
various quantities of a commodi ty, that
·would be purchased at diff! rent m:ices
by a -hou;-;;;;;fdduring~ giv:i~.Y~ · 1 kg of consumer A and 2 kg of consumer B, and
Table 2.1 shows a hypothetical demand
schedule for apples. It shows the quantity
of apples that a household would demand
at five different prices. For example, at
-a price of noo per kg, 1 kg of apple
would be purchased. The data in the
table clearly shows that an individual
household purchases a larger quantity of
apples when its price falls. For instance
when th e price of apples falls fro~
noo per kg to ~90 per kg, the quantity
[l :;;
1a I]------=----=-___:__ _ _ _ _ _ ____
demanded of apples increases from 1 kg
a week to 2 kg a week.
Ta~ : Individual Demand Schedule
for Apples
Price Quantity Demanded
per kg)
L ~ ~ ~ --t-----~ 1- - - -
(kg per week)
90 ·2
4
80
6
70
2. M arket D e mand S ch e dule: Market
demand schedule is a table which shows
various qu: ntities of a commodity that
all the buyers (cons!'_In'!!s) a'!.,.'lptlU!!_g_Jo
purchase _at ~1f§!.JeJ..f!Sd!EJ!!g~'!. K~
period. It is composed of the demand
s checlufes of all individuals purchasing that
commodity. It can be obtained by adding
up the quantities purchased at different
prices by all the households in the market.
Let us assume that 'A: and 'B' are the only
individuals buying apples in the market.
We have given here the demand schedules
for apples of these two individuals.
In Table 2.2, market demand schedule is
obtained by adding up the demand., of consumer
'.N and consumer 'B' at different prices, assuming
that there are only two consumers of apples. Col. 4
gives market demand schedule, which is merely
the sum total of amounts demanded by consumers
'.N and 'B' in Col. 2 and Col. 3 respectively, at
different prices shown in Col. 1. For example,
at price of noo, the market demand isB kg, i.e.,
so on. Like the individual demand schedule, the
market demand schedule also shows an inverse
relationship between the price and the quantity
demanded of a commodity.
Demand schedule is a convenient way of
illustrating the law of demand at a glance. Both
the individual demand schedule (Table 2.1) and
market demand schedule (Table 2.2) indicate
that the quantity demanded of a commodity
increases when its price falls and decreases when
its price rises.
FRANK ISC ECONOMICS-XII
 .. Market Demand Schedule for Apples
-
( Price Quantity _Demanded Total Market Demaff d
Quantity Demanded
by~, by 'B' (~' + 'B')
per kg) (kg per week) (kg per week)
(kg per week) -
(1) (2) (4)
(3) ,-
100 1 2 1 + 2 3
90
2 3 2 + 3 = 5
80 4 5 4 + 5 = 9
70 6 7 6 + 7 = 13

2.4.4 Demand Curve and Its Derivation price-quantity com b ina. t·ion s given. in
Table 2.1. By joining these various pomts,
Demand curve is a graphic eresentation oLJhe
we get a curve DD,. w hi ch is· known as
law of demand. We can convert the demand
schedu1e into a demand curve by plotting the the demand curve. The demand curve
various price-quantity combinations graphically. DD slopes downwards from le!t to
The picturisation of .the demand scht:,du,[.e_js right which indicates that there is an
' relationship between pnce
inverse · and the
called the 'demand curve'. It is the curve showing
quantity demanded.
different _q.!-antitie.s_ ,det11f!t!_ded at vad!l us
alternative prices during a given period. 2. Market Demand Curve and Its Derivation
g mz ·
from Individual Demand -curves: The
_, gr J& R li't1-

Like the demand schedules, demand curves

are also of two types, namely (1) Individual market demand curve is the graphic
demand curve, (2) Market demand curve. presentation of the 1!1-arket demand
y schedule. It is a curve that represents
different quantities_of goods whic~JI t7!e
D
consumers in the marke_L are -y;j_lfitJg_J o
_ 100 buy at djff!!!Jlt f!tJ..~e~ _d~LJL.Yl,egfjed
Cl)
(.) 90 period.
i l . l":liii - ~
·;::
a.. 80 The market demand curve can be drawn
70 by aggregating together all the individual
60
D
demand curves. It is the horizontal
. ibriC htiit

50
SUff!ma,!~2,.n_o[ t~ee dem,a nd C!Jr;Q~s CJi all
the households. Let us derive the market
0
1 2 3 4 5 6 demand curve on the basis of data in
_Juantity of Apples (Kg) Table 2.2. In Fig. 4, quantity demanded is
'F~ Individual Demand Curve shown on X-axis and price on Y-axis. In
Panel (i) and (ii) of the diagram, demand
Individual Dem and Curve: !ndividll_!- l curve of consumer 'A: and the demand
1. demand curve for a good is the curve curve of consumer 'B' are shown as DD
that shows dlfferent quantitie_s ~f the and DD8 respectively. In Panel (iii), we
A

good which a cons,u mer is wtllin~_ to have drawn the market demand curve
- :!!!_p rtces_
buy at differe . d uring a- :
given
- DOM by aggregating the individual
- - ·a~
perio o- tm . d
£t·
e In Fig 3 the price of
~he, vertical axis demand curves of the two households-
apples is plotte on . DDA and 0D8 • Let us see how this is done.
and quantity on the horizonta_l axis . . For example, at a price of ~100 a kg, the
.
Points a, b, c and d show four _ different household 'A: demands 1 kg of apples,

DEMAND AND LAW OF DEMAND

17
 y y
D
100
100
!!!:'..-
90
Q)
()
·.::::
Q)
u 90
a. ·;;::
80 a.. 80
70
DA 70
60
60
50
50
1---.----l-----.--.+-.--.----~
O 1 2 3 4 5 6 X O
Quantity of Apples (Kg)
Household A
(i)
~ M dual and Market Demand Curve
as indicated by point A 1 on DDA' and
the·household 'B' demands 2 kg of apples, as
indicated by point A2 on DOB. The total
demand will be 3 kg (1 + 2) at the price
of tl00 per kg. If we add 1 kg and 2 kg
horizontally, we get market demand equal
to 3 kg at the price of tl00 per kg. This
gives us point A of the market demand
curve DOM. Similarly, at the price of t80
per kg, the household 'fl: demands 4 kg
of apples and the household 'B' demands
5 kg of apples, as indicated by point
B1 and B2 on the demand curves DD A
and DOB respectively. By adding these
two quantities demanded by the two
households, we get the market demand
equal to 9 kg. This gives us another
point B of the market demand curve. In
the same way, we get points C and E in
Panel (iii). By joining points A, C, B and
E, we get market demand curve DOM.
We have added the two curves DD A
and DOB horizontally because we have
shown the quantity demanded along
the horizontal axis, and in drawing the
market demand curve we have to find out
the combined quantities purchased by the
two households at various market prices.
,) The same principle is applied everywhere,
\ no r_natter how many households there
are m the economy.
Market demand curve, like the indi 'd al
demand Vl u
curve, slopes downwards to the
I
18
I.
y
100
!!!:'..-
Q)
90
.g
a.
80
Ds 70
DM
60
50
X O 1 2 3 4 5 6 7 8 9 101 112 13 X
1 2 34567
Quantity of Apples (Kg)
Quantity of Apples (Kg)
Households A+B (Market)
Household B
(iii)
(ii)
right, indicating inverse relationship between
the price and the quantity demanded. We
have constructed the market dem~nd
curve on the assumption that the entire
market consists of two consumers only.
But the same analysis would be applicable
whatever is the number of consumers.
The demand curve is a convenient way of
showing a~ a glance the relationship between the 1
price and the quantity demanded of a commodity. 1
It shows the general nature of the relationship
between the price and the amount of a commodity
purchased. A single point on the demand curve
shows a single price-quantity relation. The whole
demand curve shows the complete relationship
between price and the quantity demanded. It
shows the various quantities of a commodity
demanded at various possible prices on the
assumption that other things remain unchanged.
Remember that every demand curve is drawn on
the assumption of ceteris paribus order.
2·4·5 Reasons for Downwaid Slope
of th~ Dem~nd Curve ·
As explained above, the demand curve slopes
dow_nward s from left to right. The negatively
sloping demand curve is based on the law of
demand. An important question which needs
to be explained is: Why does the demand curve
slope downwards? In other words what is
the ~xplanation of law of demand? Negatively
sloping demand curve or inverse relationship
between the price and the quantity demanded

can be explained in terms of the following factors:
1. Law of Diminishing Marginal Utility:
The law of diminishing marginal utility
states that with an increase in the units of
a commodity consumed, every additional
unit of the commodity gives lesser
satisfaction to the consumer. In other
words, marginal utility of the commodity
falls with an increase in its consumption.
A consumer will maximise his satisfaction
when he/she equalises the marginal utility
of the commodity with its price, i.e.,
Marginal utility of a commodity =
Price of the commo~ity.
From this equilibrium condition, it
follows that a consumer would purchase
a larger quantity of a commodity only
when its price falls because the marginal ·
utility from additional units falls. This is
explained in detail in Chapter 3.
2. Income Effect: A change in demand on
account of a change in the real income
-resulting from a change in the price of
a commodity is known as the income
effect. The income effect occurs when the
price change affects consumer purchasing
power and thus leads to a change in the
quantity demanded. When the price of a
commodity falls, the consumer can buy
a larger amount of the commodity with
his/her given money income. Or,
he/she can buy the same amount of the
commodity as before and at the same
time he/she would be able to save so~e
money. In Other words, a fall in the pnce .
of the commodity results in an increase m
real inco~e, i.e., purchasing power of the
given money income increases. A part of
increased real income may be used to buy
more of this commodity.
· Suppose a consumer is · spending t200
. on
the purchase of app1es, and he/she 1s able
. In short,
to purchase 2 kg of apples when the pr;e
of apples is tlOO per kg. Now, suppose e
price of apples falls to tBO per kg. If the
consumer continues to buy 2 kg of apples
DEMAND AND LAW OF DEMAND
d nly t160.
as before, he/she has to spen o t40 It
He/She is therefore, able to save . f
means hi~/her real income (in terms o
apples) has increased. ~e consun:ier
this increased real income (1.e., .
n;:~
use .. ti 1 quantity
saved in purchasing the rm a . .
of 2kg of apples at a lower pn~~ :
purchasing more apples. Thu~, a .
price of a commo 1 d"ty causes mcrease. th m
.
re al mcome and thereby increase m. e
quantity demanded of this commod1:h
3. Substitution Effect: Another reason y
e demand curve to slope
we expec t th ff t
d • the substitution e ec ·
downwar s 1s ,n. th t
The substitution effect is th e e"ect . a
a change in relative prices of substitute
goods has on the quantity dema nded.
When the price of a commodity fa~ls
and prices of its substitutes remain
unchanged, it becomes relatively cheaper
in comparison to its substitutes. In °ther
words, its substitutes become · relatively
costlier. Consumers will normally like to
substitute clleaper goods for costlier ones.
Thus, demand for the relatively cheaper
commodity increases. For instance, if
the price of coffee falls, the price of tea
remaining the same, coffee will become
relatively cheaper. Coffee becomes more
attractive to people in comparison with
tea. Consumers would naturally shift
from the consumption of tea to coffee.
This increase in demand on account of a
commodity becoming relatively cheaper is
known as the substitution effect.
As compared to income effect,
substitution effect is more important. We
have treated the income effect and the
substitution effect separately. In fact, they
occur simultaneously. The sum total of
income effect and substitution effect is
called the price effect.
-
Price Effect = Income Effect
+
Substitution Effect
19
4. Increase in Number of Consumers: A fall
in the price of a commodity leads to an
increase in the quantity demanded by
the existing consumers due to income
an.d substitution effects. At the same
time, when the price of a commodity
falls, many new consumers will start
purchasing this commodity. At a very
high price of a commodity, only a
few rich people can afford to buy that
commodity. When the price of this
commodity falls a little, people with
moderate income will also be able to
purchase this commodity. At still lower
prices, even the poor persons will be
able to afford it and, therefore, the
demand for the .commodity will rise.
Thus, when the price of a commodity
falls, the number of consumers increases
and this tends to raise the demand for
the commodity. For example, when the
pricE: of apples is tlOO _per kg, then a
handful of consumers can buy it. The
quantity demanded is small. As the price
of apples falls to t70 per kg, apples are
Explanation of Law of Demand
at a Glance
r
1. Law of Diminishing Marginal I
Utility
2. Income Effect
3. Substitution Effect
4. Increase in Number of Consumers
5. Several Uses of a C~mmodity
.
2.4.6 Exceptions to the Law of Demand
Law of demand is considered to be valid in
most of the situations. But in actual practice,
law of demand may not operate in many cases.
Many a time, we observe that more quantity of
a commodity is demanded at a higher price, and
less of it is purchased at a lower price. In these
situations, the inverse relationship between price
and the amount purchased does not hold good.
These are known as exceptions to the law of
demand. In such situations, demand curve may not
have a negative slope; it may be sloping upward,
as shown in Fig. 5. A positively sloped demand
;.,---:; I

within the reach of those households y

who could not afford to purchase apples
D
at a higher price. Consequently, the total
demand for apples goes up.
a.> P1 r - - - - - - - - -.../
u
5. Several Uses of a Commodity: There ·;;::
a_ p
are some goods which can be put 0 r - - - - - - - -.../
to a number of uses. Some of them
are more important, while others are D
less important. Steel, aluminium, coal,
electricity, milk are examples of such
commodities. When the prices of such o~ -- -----L_j__ _ ~ x
commodities are very high, they will Oo 01
Quantity
be used for more important purposes Fig. 5 A Positively Sloping Demand Curve
only and, therefore, a small quantity
will be in demand. But when the price. curve sho~s that a rise in the price of a cogynodity
falls, these commodities will be put to feads to an increase m the quantity deman and
less important uses also, leading to an a m e pnce · ea s to a f~ ty
increase in demand. For example, when demanded. For example, an increase in the price
the price of electricity is very high, it will ?£ fhe co~odity from OPO to OP1 results in an
be used mainly for lighting purposes. increase m the quantity demanded from o<2o to
When its price falls, it wiH be used for OQl · Thus, exception to law of demand 01eaf1S
cooking as well. that a demand curve has a positive slope.

. )(II
FRANK ISC ECONOMICS-
20
 There may be several reasons for an upward inferior food like maize or jowar as these
sloping_Jiemand curve: are absolutely essential for their survival.
._ -J"ciffen Goods: Gi fft,n Thus, they will increase the demand for
goods (named . ..after maize or jowar at the cost of wheat or rice.
"ffie nineteenth century \ .,Articles of Snob
economist Sir Robert Appeal: The law of
Giffen who pointed out demand d~~-rwl a122Iy
_ _ . - - : r__ _

this phenomenon for to the commodities

the first time) are those - - - -
-

which serve as 'status

p . ~ · ~ - -~

inferior g_oods on
which
the consume_:;.,;. ,;;'iii,_a
la~ge P.'!:.11...£!-Eis. i!!£0 11Je
and the demand
] or which falls with a 1 all in th . .
• - - - - - -- --.;..;:.;...~ etr
~ ? ? rmderS tand this, it is important
to ~1shnguish between two concepts
of in_come, namely money income and
real income. Money income measures
I • ii :ii" M ._. - ~ ~ ~ - - ..-.... ~ ~""
~onsum~r s ,,,!Jl...<;.Q.q l~ :fl,.. .terms=.Qt ,&..oJlle
monetary unit _like so many rupees or
so many dollars . ...~ eal income refers to
i:'he purchasing power of the consumer's
~~~ i!:,1-CO!_!!e,><!'l. that is, the amount of
goods and services that c.iii'be Jiurcfia~ d
w1,·t hth·e -g!ven -
mone incom -,
'For example, maize and ·owar are
. erior food items for an average Indian
consumer. 121-ey are consumed l; rgely by
Sir Robert Giffen
prestige or are a source,.1
°or d1splay of ~aith
..... .---..J,e " - - · ~·- Thorstein Veblen
richness. Veblen, who
. was"'Iirst to coin the term, has termed these
goods as goods of conspicuous consumption.
These good§_are d~~~'4E~~a~ e .~ !!J.e
enjoyment they give to their possessor from
fuefeeling ·th~t'other ·prop I~ .e;,_yyhim/her
-ror p os se ss1ng. 'ffiese=h'.rgft:"p~T;;J i teqis.
J iarnond is o~ ~: gi~~-a~~ -~ ~:.of
~ s case .. Rich women would like to buy
diamond simply because its price is very
high. The higher price m~es the possession
~ amond more prestigious. These ·goods
of sta~s s_!1Ilool r emain exclusive so long
as ~e1r pnces remain high. When the price

- ~-..... ~-----.-...-
poor peo:ele. As ffie price of ""ma.Ize '1aUs'
,
1 of diamond goes up, their prestige value
will also ~o up .._,Therefore, at higher price
-real income of the c~ su";ne;'"rTse; . \Vith
an increase in real income, a coi'.i.sumer t!:te quantity dem~ ded of diamond b)( rich

-
can afford fo urchase s uperior foods like
nee or wfieat. mce there is a limit to the
.

intake of food, an increase in demand

~
consumers may increase.
xpectations Ab~~iF~ture Prices: If rice
.2_f a co~,,9.9ity,_j ~_r,is1?g todaz ~d.12it ~
,_ ·

for wheat or rice would lead to a smaller ..,1!~ely to !!..s.:_!!1-~e=-in the future, eo i e
will buy more even at the " . tin - ...1\.J >
quantity d emana;~r;i" maize. Thu;;=;s;h en -·. . , . ~- ex1s g higher
the==price ;;( coi r; - (inferi~~) ;reals life price and store it up. They w ill d o thi
maize and jowar falls, the consumers h<;Ye order to avoid the pinch of hi ; i - s.
. fu . ~---:--~-___:__..:~ gher pnce
tendency t°= sz end less on them and m •-;-- ture. Similarly;
-- ' when the consumers
"'
shift over to superior cereals like wheat anhc1pate a large fall in the ., •
co d' . p nce of a
and rice. imilar ly, if the yrice of such ......mmo ity m future the ·11 - ....
th 'l-! ------ ' Y WI postpone
inferior od rises, poor consumers will etir P,_u~ hase__ e~e;-ff pri; e falls today so
be forced to cut down the consumption of as o purchase thi - - - a. -§.till
.• _.. • . s comlllQ9,i1¥,_9!
expensive food items like wheat, rice and 12!,Ver :ence m future -
fish because .of a steep fall in their real 4. Emergen~i; s: Law ~f demand
hold d d . - . ma;r not
income (as bulk of their income is spent . goo unng., emergencies like wa
on inferior food items). To maintain their ~mines, etc. At such . ,,, r,
beh . - times, consumers

-
intake of food, they will consume more of ave m an abnormal way. ~f ~~X. e~ ect

DEMAND AND LAW OF DEMAND

21
 'change in demand .' In economics we tend to draw
shortage of goo?s, they ~?_1:1~_c! buy ~d a distinction between these two terms. We should
hoard g~odsCl'"e ven at _1:igh price~ ~1:~~g i
keep this distinction clearly in mind so as to . -
- ch~ -p-eriods. L)n- ilie other hand, d~g I

avoid any possibility of confusion.

I

SU - - - - ~-:--- ---- t
depression t~ y will bu~ _l,:~! even .a C

low~ ric~ , . . 2.5.1 Change in Quantity Demanded-

~ ty-Price Relationship(J,orpeti~ e!
.fi;.. Movement along the. p emand Curve
consumers ass1;ffie that .higl!_,E_:~ced 0
. ' ... ' •

ar:__of hi_ghe~j!!a~ ~ the lo~ pnS~d When the amount demanded of a comm~
g ood~ They take pnce as an m a ex of changes <rises or fa lls ) as a result o_t c~e
quality. In such cases._ more of th~ g ood,s in its own price, while other determinants of .
may be - dema~ ed _!t a _l:!lgh~t.PLif ~· demand (like income, tastes and rices o related
For example, ~ me peo;e!e.. ~'-!Y. ~ !!.1..~o~ goods) remain constant, it is known as change in
"fLux Supreme' having hi,W.l;£.£ES~~ai:1 the quantity demanded;. Change the qu:intity
~ otl.,ina_a -,,~ , lowe:.J?!.ice demanded may be of two types: (z~ expansion.of
0

even though the two soa brands are demanf!, (ii) contraction of demand.
ost o e same guali!X:.: ·s is known J ?Expansion of Demand: When the quantity
as en
efjj t (after the n of Thorstein demanded of a commodity rises due to
ye w o.mdicated this fact). fall in its priceL '!,!her things remaining
Change in Fashion: When a commodt!y the same, it is called 'rise in quantity
goes out of fashion; consum~rs V£111 demanded' or 'expansion of demand'. For
~not purchase a larger quantity qt this example, as shown in Table 2.1, when
~~ommodity even when its £.ljce i.ll~s!4~~- the price of apples falls from ~100 per kg
Fo;;;;-an7e;'ilfu~ 'fashion of some ladies
-...- .,. ___ _,,_ ..,..,.... _ ........ cmc-e,p ...... . . , . . . ~ ~ ~ to ~90 per kg, a consumer's purchase of
wear changes, ladies will not purchase it in apples rises from 1 kg to 2 kg per week.
E~~l!...!!.1!..-E~~se is red~~~d; This is expansion of demand.
-- -,., ,., - - ~-- -- - - ~- .

u Exceptions .~1:o·' the ·Law of' Demand of Demand: 'Contraction of

t3 •· · af ·a Giance ··
demand' or 'fall in the quantity deman~d'
- 1. Giffen Goods '· · refers to a decrease in the quantity demanded
d .. 1
' · 2. .Articles of Snob Appeal
1"" .....

of a commodity as a result o{ rise in its

3. Expect~tions a~~ut Future Prices erice, other .things remaining the same. '
Look at the Table 2.1 again. When the price

We have explained above certain abnormal

• of apples rises from ~70 a kg to ~80 a kg,
a consumer buys less apples, 4 kg instead
of 6 kg. In this case, there is contraction of
'I
l

situatio~ when the law of demand does not demand or decrease in quantity demanded.
hold good. However, notwithstanding these Any point on a demand curve represents a
exceptions, the law of demand is applicable in particular quantity being bought at a specified
most of the situations in real life. price. Different points on a demand curve
represent different quantities demanded at
2.5 MOVEMENT ALONG THE DEMAND
CURVE AND SHIFT OF THE DEMAND different prices. Therefore, a change in quantity
CURVE demanded is indicated by a movement along a
particular demand curve. A movement do.J£!1- a
Economists usually mean something different
demand curoe is called a 'rise in the quan!!._ty_
when they talk about a 'change in the
demanded' or 'expansion of demand'.~
quantity demanded' than when they talk about
other hand, a movement up the demand E!!°e

22 )(II
FRANK ISC ECONOMICS--
 is called a 1all in the quantity demanded' or
n trac t ion
· of demand'. Thus, a change in the
qua t·t d Demand Curve
. n 1 Y ema nd ed as a result of change in
price of a commodity alone does not involve
the drawing of a new demand curve, but is
r~presented by the movement up .or down on a
given d d like income, taste, prices of other commodities,
eman curve. This is illustrated in Fig. 6.
.
It
. will be seen in Fig. 6 that when the price
is _O Pl' quantity demanded is OQI" Now, if the
th
~~ce of e ~ommodity falls to OP2, the quantity
mantled rises to OQ2. This movement from A
~ A · th
"2 m e downward direction (as indicated by implies that a larger or smaller quantity will be
an arrow) on the given demand curve DD is the
ex~ansion of demand. On the other hand, if the
price of the commodity rises from OP1 to OP3,/
the quantity demanded of the good falls to O~. . 1. Increase in demand, 2. Decrease in demand.
This movement from A 1 to A 3 in the up~?'rd
direction (as indicated by the arrow) on the g/yen
demand curve is the contraction of demand.I
y factors other than the own price of the
D
Contraction of
P31--_ _ ___,_A3 / Demand
Q) 1--- - -- - ~_,.A 1 /Expansion of
P1 Demand
A2
P2
D
o~- ---'--L--L---- - ~ x
03 01 02
/ Quantity
Fi~ ovement along the Demand Curve
E~p-ansion of Demand results from :
A fall in the price, other things remaining
the same. It is indicated by downward
movement along the dema nd curve.
Contraction of Dema nd results ;
from:
A rise in the price, other things remaining
the same. It is indicated by an upward__
moyel!le~t ~ on$_ _the demand curve.
2.5.2 Ch ange i~n De mand - Sh ift in
The amount purchased of a commodity may
change not only because of a change in its own
price but also due to change in other factors
size of population, etc. When the amount
purchased of a commodity rises or f alls because
of change in factors other than the own price of
the commodity, it is called change in dema!!!·
It should be noted that a ch ange in d emand
1
purchased at each price because of change in
other factors.
Changes in demand may be of two types:
.J/lncrease in DemanciLJnf rease in demand
refers to a situation when the consumers
buy larger amount of a commodity at
the same price because of change in
commodll,y. crease in eman ma take
place du to increase in income, a change
in taste in favour of the commodity, rise
·fri the -prices of substibites a fall in prices
of complementary goods, increase i
population, redistribution of income, etc.
Increase in demand is illustrated in
Table 2.3. Column 2 is the initial demand
schedule in Table 2.3, which shows various
quantities of apples which a household
demands at different prices when his
income is less (say t25,000 per month).
For instance, the household demands
1 kg of apples per week at a price of
noo per kg. Now, suppose the level of
income rises to t35,000 per month. The
quantity demanded of apples at various
possi~le rrices of apples corresponding
to this higher level of income is shown
in column (3). Thus, the demand schedule
relating columns (1) and (2) is replaced by
the one relating columns (1) and (3). We
observe now that when income rises, the
quantity demanded of apples at a price

DEMAND AND LAW OF DEMAND 23


Two· Alternative Individual Demand
Table 2.3: Schedules for Apples
- Quantity
I:
Price Quantity
demanded demanded
per kg.) (kg per week)
(kg per week)
at initial level ·when househol·d's
of household's income rises to a·
. new level
income ' ..
~25,000) ~35,000)
(2) (3)"
(1)
2 Fig. 7 Shift in Demand
100 1
90 2 3
80 4 5
70 6 7
of noo per kg rises from 1 kg to 2 kg
per week. A similar rise occurs at every
other price.
2. Decrease in Demand: Decrease in demand
refers to a situat ·
uy a smaller quantity of the commodity
at the same price._Decrease in demand
~takes place as a resulto f changejn..f.aGtQ1:s
«./ other than the gwn price a£ the c ~ity.
As pointed out above, a demand curve is
drawn on the assumption of ceteris paribus,
i.e., the assumption that everything except the
commodity's own price is held constant. Any
change in these other factors will bring about
a shift in the entire demand curve. Therefore,
change in demand refers to a 'shift' in the entire
demand curve.
Ch an g e in demand is i 11 us t-r ate d
diagrammatically in Fig. 7.
A rightward shift in the demand curve from
D1D1 to D2D2 indicates increase in demand. It
is clear from Fig. 7 that at a given price OP,
the consumers shift from point A1 on demand
curve D1D1 to point A2 _o n D2D2 (as shown by
the direction of an arrow) because of an increase
y
Decrease in
Demand
Increase in
Demand
ol_------!:----;
03 01
~ ~ ~ - -- ~x
Quantity fI'
in demand. The amount purchased at OP price
increases from OQ 1 to OQ 2 . An increase in
demand may also mean that the same quantity
OQ1 is demanded at a higher price OP2. On the
other hand, if the demand decreases due to, say,
decrease in income or fall in the prices oHts
substitutes, the demand curve shifts to the left (as
indicated by the direction of an arrow). Therefore,
the consumers shift from point A1 on the demand
curve D1D1 to a point A3 on D3D3. Consumers
now demand OQ3 instead of 0Q1 at OP price.
ers
Decrease in demand may also mean that the same
quantity OQ1 is demanded at a lower price OPr
An increa se in d e~and means that the
entire demand~·_curv~ shifts to the right,
indicating a larger amount purchased at
every price.
A decrease in demand means that
the entire=demand curve shifts to the left,
indicating · a smaller amount purchased at
every price. ----
2.5.3 Distinction between Expansion of
Demand and Increase in Demand
.;/Expansion of demand refers to the larg~r
quantity being purchased due to fall 1ll
the price of a commodity, while increa,s;
in demand refers to more being purchase
at the same price. rill a
J Expansion of demand is ·due. to. crease
fall iJ1
tr· commodity's own price, whi1e 11l
1cs-)(II
FRANK ISC ECONOM
 Table 2.4: Factors Which Cause Change in Demand
-

Shift Factors Increase in demand/Demand curve Decrease in demand/Dema nd

shifts to the right when there is: curve shift to the left when
there is:
I. Income
I. Increase in income I . Decrease in income
2. Price of substitutes
2. Rise in the price of substitute 2. Fall in the price of substitute
goods goods
3. Price of complements
3. Fall in the price of complementary 3. Rise in the price of
goods complementary goods
4. Tastes and preferences
4. Favourable change in tastes and 4. Unfavourable change in tastes
preferences and preferences
5. Price expectations
5. Expectation of rise in price 5. Expectation of fall in price
6. Population
6. Increase in population 6. Decrease in population
I

I I

demand is due to change in 'other factors' a commodity's own price; decrease in

"- affecting demand.
Expansion of demand simply involves
a downward movement along the same
demand curve, but increase in demand
results in rightward shift of the entire
demand curve.
2 .5.4 Distinction between Contraction of
Demand and Decrease in Demand
.of dema~d ~eans a fall in
the amount purchased due to rise in
demand means smaller amount being
purchased at the same price.
of demand is due to a rise
in a commodity's own price; decrease in
demand is due to changes in 'other factors'
_>ffecting demand .
.;,Contraction of \demand simply means
· upward movement along the same
demand curve, but decrease in demand
results in the leftward shift of the entire
demand curve.

SUMMARY

Economic goods are those goods which have a price because they are useful as well as.
· scarce in availability.
Free goods are those · goods which are free gifts of nature and they do not· have a price.
Demand for a commodity refers to ~e qu~ntities _of a good. which consumers are willing
and able to purchase at various possible pnces dunng a particular period of time.
l~dividual demand for a commodity is th~ quan~ties of_ a commodity which a single
consumer is willing and able to purchase at vanous pnces dunng a Particular period of time .
•;. Market demand refers to the total quantities of a commodity that all the households are .
- willing and able to buy at various prices during. a specified period of ~me. · · .,
Determinants. of de~and are the f~ctors affectmg the d_emand for a commodity. Important
determin_ants of demand are: 1. Pnce o~ the commodity; 2. Income of the consumer;
3. <;onsu1p.ers' tastes and preferences; 4. Pn_ces of related goods; 5. Consumers' expectations;
· : o. Cqnsumer-credit facilities; 7. .Derr_ionstran~n _effect; 8· Size and composition of population;
9. Distribution of inco:p1e; 10. climanc factors, ll. Govenunent _policy.

ELASTICITY OF DEMAND
4.1 INTRODUCTION
As explained in the last chapter, the law of
demand states that the amount demanded ·of a
commodity is influenced significantly by the price
of the commodity. But the law of demand tells us
only about the direction of change in demand for
a commodity in response to change in its price.
It simply states that change in price and change
in quantity demanded move in the opposite
direction. Thus, the law of demand makes a
qualitative statement only. It does not tell us about
the magnitude of change in quantity demanded
in response to a change in price. In other words,
it does not tell us by what amount the quantity
demanded of a commodity will change in response
to a change in its price. The extent to which the
demand for different commodities responds to price
changes differs. For example, the demand for a
good like salt is not affected much by a change in
its price. On the other hand, a change in the price of
goods like colour televisions or cars is likely to have
a large influence on its demand. 1!rl(information
about the extent to which demand responds to a
change in the price (or any other factor affectin~
demand), is provided by elasticity of demand.)
( Elasticity of demand makes a quantitative statement.
Toe credit for introducing the concept of elasticity
of demand in economic theory goes to the great
economist Alfred Marshal!) In this chapter, we
discuss various facets of elasticity of demand.
4.2 MEANING AND TYPES OF
ELASTICITY OF DEMAND
In general{£.Zasticity of demand refers to the deK!ee
ct_. resp_onsiveness of quant~ty demanded of a
•
commodity to a change in any of its detenninants~
namely price of the commodity, price of other
commoditie~ and income of the consumers. It is a
measure of how sensitive the quantity demanded
of a commodity is to change in any of the factors
influencing demand like its price, prices of other
goods and change in consumer's income.
. There are as many types of elasticity of
demand as there are typ~s of economic variables
determining the demand. However-C:Jhere are
ee main types of elasticity of demand, namely
:price elasticity of demand,~elastici
of demand,Y.Income elastici!y of demand.
IElasticity of Demand l
t
+
Price
i +
Income Cross
Elasticity Elasticity Elasticity
of Demand of Demand of Demand
Of these three types of elasticities, price
elasticity of demand is the most important.
Therefore, we shall discuss price elasticity
of demand in detail and cross elasticity of
demand and income elasticity of demand will
be discussed briefly.
4.3 PRICE ELASTICITY OF DEMAND
Price elasticity of de~and is a measure of hoW
much the quantity demanded of a commodity
changes when its price changes(Price elasti.~ty
0
/ demand may be defined as . the degree of
responsiveness of quant i fy demandftrof
cotnmodit}l_ in response to a change in t ~ :I
By degree here we mean the rate of change,
Therefore, more precisely(,,rice elasticf!iJ/
_de_m
_a_n_d7_. r~[e.!_5:.__ to_~ ratio of the p_ercenta..3e ·
chang~ in t~_e qu'!:n!!:._ty demandef!. o[ a com,odi~
to _a given
_ __ _percentage
-~- -chanue
o in ,·ts--:- --- -
pnce.
Thus:
.
e = Percentage change in quru:ttity demanded
. commodity is said to be infinite. In tJ;tis
P . Percentage change in price
Where eP denotes price elasticity of demand.
4.3.1 Classification of Price Elasticity-·
Degrees of Pr~ce Elastici~ of Demand
The d egree o f responsiveness · of the quantity ·
demanded of a commodity to a change in its price
may differ. To explain this phenomenon of degree
of elasticity, economists express price elasticity·of
demand in terms of its numerical value. Thus,
price elasticity of demand may be expressed
in terms of its numerical value. The numerical
value of price elasticity of demand ranges from
zero to infinity. In terms of its numerical value
(i.e., degree of elasticity), there are five different
kinds cj. price elasticity of demand.
\¥P erfec tl y I n elastic D mand: When
quantity demanded of a ommodi does
«not respond to a change in its price, th ~n
the elasticity of demand is zero. In this
case, the ...9uantity demande~ remains t~e
s_ame, irrespective of any rise or fall m
theprice of - the commodity. - No matter
what the price is, the same quan t 1t:Y
is demanded. It is a case of perfectly
inelastic demand. A demand curve of
zero elasticity is known as perfectly ~r
Completely m . elastic demand curve. Thi_s
is illustrated in Fig. 1 (i). D1 curv~, whi~
is parallel to Y-axis, is perfectly m~ti~
demand curve. The amount pure as_e
remains OQ irrespective of\whether ..12.n~e
is OP or OP1. Cases of -perfectly inela c
-=----,:--- in the case of
·demand are very rare even
the basic necessities of life like food as
demand for even basic necessities al~o
f h nge in their
O
changes because
.
price. However, -m dcase
.
a c, a
of life-savmg
••
medicines the deman for such med1cmes
is perfectly inelastic .
.v . Perfectly Elastic
- Demand: Wh en con sumers
h - ll that t
----.:-a::r:::e=:p::re:p::a:r:ed:::t:o:::p~u::r~c::as:e=a= -------'-~-· ------------ --::-7
l:LAsr1c1rv OF DEMAND
can get at a particular PJlllllliut no th ing__
at all at a slightly hi~ price, th en
-"i'iiep ri ;; elasticity of dema nd for .:-
c~se, a very small fall in the P1:ce · 0 fa
~ommodity causes the demand to increase
\ to infinity (oo). A demand curve of infinite
J}elasticity is known as perfectly or completely
CW.., /, -:izastic demand curve. In this case, d~mand
is perfectly elastic. Demand curve ~2
in Fig. 1 (ii), which is parallel to X-ax1S,
illustrates perfectly elastic demand.~
price OP1 nothing is demanded, but at a
slightly lower price OP an infinitely large
quantity is demanded. This is the extreme
or upper limit of price elasticity. Cases of
- _perfectly elastic de~and .are extremely ~are.
~ Unitary Elastic Demand: When a given
percentage change . in the price of a
commodity causes an equivalent percentage
change in the quantity demanded, then the
.. elasticity of demand is said to be unitary
(or one). Foro/ample, if a fall in the price
of th~ commodity by 10 per cent causes
Dt:J an increase in•·the amount purchased of it
.... by 10 per cent, the elasticity of demand
is equal to one. A demand curve having
.
unitary elasticity over its whole range. is
shown in Fig. 1 (iii). Demand curve D
3
has unitary elasticity ~t all the points on
the curve. Such a curve is known as a
rectangular hyperbola' curv~. A rectangular
\ ""hyperbola curve is a curve in vyhich the
· total area of rectangles at different porn·ts
on the curve is same. Such a curve extends
towards the X-axis and the Y-axis in a
uniform way, but never tom;bes them.
sti
Therefore, the demand curve representing
unitary elasticity of demand on each of its
point assumes the shape of a rectangular
hyperbola. Cases of unitary elastic demand
~:- ---=--- __ _
·.
/J
_____are -veryrue--indeed,___
. Elastic Demand: When the percentaue
__·_. __
d d o
change in the quantity deman e of a
h (M) ~\-
r commodfhl 2 exceeds the percentage change
ey - L.,J' in its price,.. the elasticity of demand is
1[ 53 J
 y
Ta
61 ("
TyJ
P1
a.i
(.)
P1r - - - - - - - - 1 Q)
()
D2
Ela
·;::
0... p i - - -- - ---;
ct p

1.P
Ii

C
I

Quantity
a
I

\ ')....- 00
--
~x I
0 Quantity
X
2. IJ
(ii) ep = 00
(i) ep =0
Perfectly elastic
Perfectly inelastic

y y
• 3. l
e
Po

Q)
u
·;:: Q)
c.. ()
·;:: 4. E
c..

P2

D3 P3

0 Quantity X O Oo 01 02. 0 3 D~ X 5. p
(ill) ep = l Quantity
e.
Unitary elastic (iv) ep Varies

Degrees of Price Elasticity of Demand

'
greater than unita!Y, Demand is said to
be relatively elastic here. For exijID.ple, if
a fall in the price of the commodi by
1 per cent causes an increase in amount
demanded by 15 per cent, the demand is
said to be elas!k_Generally, the demand
for luxury goods \ is elastic in nature.
In ·hi I tfv)2a¥rrfand curve D4 is elastic
between A and B because the percentage
change in quantity demanded from QQp to
OQ1 is relatively larger than the p~rcentage
change in price from OPa to OP:1•
.5/i~Iastic Demand: Demand is inelastic
when the percentage change in the quantity
demanded of a commodity. is less than
the percentage change tn its price. The
elasticity of demand here is less t§,.
unity. We say that demand for this good is
if a fall in the price of a commodity by
10 per cent leads to an increase in quantity
demanded by 8 per cent, the demand is
inelastic. Demand curve D 4 is inelastic 4.3.
between C artd D because the percentage
change in quantity demanded from CX1:,JO Elas1
~ 37s smaller than the percentage change diffe
!!1 price from OP2 to OP;r_ dem,
Table 4.1 summarises the description of these qf di
five types of elasticity. of de
It should be noted that the demand curve need (i) p<
not have the same elasticity over its eh.tire range. (i
A demand curve is more elastic at the upper
range and less elastic at the lower range. As we
shall explain later, a downward sloping straight
line demand curve has elasticity that varies fro~
infinity at the price axis to zero at the quantity aXJS·
It is only in the three exceptional cases illustrated

-
refutively inelastic. Generally, the demand for in panels (i), (ii) and (iiz) of Fig. 1 ·that dern~d
necessities is relatively inelastic. For instance, curve has the same elasticity i;hroughout its length·
ELAs1
5-)(II
54 FRANK ISC ECONOMIC .
ther the of demand elasticities, namely ineome elasticity
·s or the the cross elasticity of demand. __
l..fucome elasticitJI _of demand __tn.easu~es
' e · the degree of responsiveness of the quantity
1
seller~. demanded of a cdm o,Jity to a chang_es in
lnelast1c - - - - ~ · · I ·
income of the consumers. More precrse y, mcome
rd
t en of elasticity of demand m be defined as the ratio
nodities. of the proportionate change in the quantity
::m with demanded of a commodity to the -proportionate
:l.Xes like change in income of the consumers.
tlffient is
sti Income elasticity of demand can be measured
city of with the help of the following formula:
taxed.
Plenty': Percentage char:ige in Quantity Demanded
e =
and also /
;,

Y Percentage change in l1'come

,zen~iri.:·:.,.,~ or, in symbolic terins,·
,rings in
~Q
bumper L\Q L\Y L\Q y
Q
income ey = ~y
--+---x-
- Q y - Q L\.Y
:ause of y
,roducts.
jrices of Thus:
in view
products
where, ey stands for income elasticity of
e of the
demand
that the
Y stands for initial income
prices of
Li Y stands for change in income
Q stands for initial quantity
LiQ stands for change in quantity.
le,
md for
UlC" oe zeru L/CLau..:,c. U..l.l

beyond a certain level may not brine

.1..1.U... .l.'I....U...:7'1.... J..l l HlCo:rn.
·----
commodity-
price of its ·
ncome about any change in the demand for saI~
- -cross ela
ly, the Thus, except in case of inferior goods and with respect
cars, inexpensive essential goods, income elasticity of be measured
high demand for most of the commodities is positive.
Pe
Table 4.6 summarises the description of
~ntage pes of income elasticity of demand: exy=-
Pe
led is
le 4.6: Types of Income Elasticity
hange
, than Descrip'tion ·. , or, in syr
~c
lf. /f1

mand Measure
to be 1. Positive Quantity demanded increases Q
s like as income increases (e.g.,
e low normal goods).
(i) Greater than Quantity demanded rises less
If the zero but less than in proportion to income or
antity than one increase (e.g., necessities).
entage where, e
(ii) Greater than Quantity demanded rises
equal one more than in proportion
modity to income increase (e.g.,
[ncome luxuries).
ents a
(iii) Unity Quantity demanded rises ._in
elastic
the same proportion as rise F
1n mcome.
~mand: 2. Negative Quantity demanded decreases
l to be as income increases (e.g.,
ome of inferior goods).
mount · 4.5.1 Type:
3. Zero Quantity demanded remaII15
versa. e
ties, -an
unchanged as incom
· e ------·
Dem,
increases (e.g., inexpens1v Cross elastici
in tl.1~1 ,i ,
:mentioned bE
rtanded 1 .... ...___ _ _ _ _ _Le:..:s-=-
se=n:..:.t:=i·a=l~g~o:::o:::d:::s~):.:_-_ __
bought I. Positi,
.city of 4.5 CROSS ELASTICITY OF DEMAND Cross E
ve. For positiv1
As we have seen in Chanter 2. various goods one cor
 such a s~tu.ation. The degree of responsiveness
decreases the
of quantity demanded of one commodity to a
example, tea ,
change in the of another commodity is called
A fall in the pri
the cross el~~tiaty of demand. More precisely,
quantity of cof
cross elasttcit o demand is defined as the
the quantity de
:_rcenta~e ch~nge in quantity demanded of a
in the price of
commodity with resp_ect to the c~~r in the of tea demand,
price of its related commodityd o
same sign, i.e.,
Cross elasticity of demand f a commodity X 2. Negative Croi
with respect to price of another commodity Y can Cross elasticity
be measured with the help of the following formula: negative wher
,. _ - -,,,,..,,,.."N,--~ . -· - -····- .,,.. ,- - ~,!, ~... - ., ••• · - - -,,.

Percentage change in the quantity leads to an in 1

·demanded of. commodity X · , · X. Complemen

Percentage change in· the J~ric~ of cross elasticitie:
- CO!Jlmo~itx X '
-

0
butter are com
----~= -~=·---..,.__ ___ ~"'--=
-- ~_,,._~""""'~-------.;:,--....-:-.= ""-·-»-=---·-··-·,;,;. _ ___;·.•:__ ,~ .. ,•. -.
in the price of
or, in symbolic form: in the quantit:
~Qx butter, but of br
Qx dQx Py the price of bu1
--X--
- Qx dPy bread demande
i.e., cross elasti,
,,_, -- - 1;,·· ·-m ,,_,,. ,..1r.-1'l», 3. Zero Cross Ela
s dQx .' Py 1 elasticity of dem
or i,eXY:;;:: dPy ,. Ox ·;
e ' _ _,.. I .....,.;Jl./lJk,~·-i"J
a change in the :
·- ---""'s-;~d s for cross elasticity of does not affect
where, exy commodity (X).
s demand of X for y .
related to each
[l stands for the initial quantity
cross elasticity
, Qx d anded of commodity X
em ·ty A change in thE
d Q . stands for change in q~an~ to influence the
x demanded of commod1~ Table 4.7 summa1
p stand s f or the initial price of various types of cross
Y commodity y . of O ~ Tab 4.7: Type:
L\ p Y stands for change in price
-Nu11J,erical Descrii
commodity Y
Measiures
 1 . t: . 1 LJ.U;:);:) C.LUi:>l..1.\...1.L-J ... ..., - --o--~

3. Zero Cross Elasticity of Demand: Cross

elasticity of demand is said to be zero when
a change in the price of one commodity (Y)
does not affect the demand for another
commodity (X). If the two goods are not
related to each other, say tea and TV set,
ty
cross elasticity of demand will be zero.
A change in the price of tea is not likely
tty
to influence the demand for TY.
Table 4.7 summarises the description of
of
various types of cross elasticity of demand:
of ~ Tab 4.7: Types of Cross Elasticity
0
rwuniqic,1 .· i · ·, , ·· ···

,..,.~
Me.asut-1.fi lr ·-
ift:· - .'>;,::?!= -:..-a;,~. 'ii., f.f.: '- .Ji.·':~:

1. Positive Price increase Substitutes

of commodity
es as
1
Y increases
the quantity
nand: demanded of
to be commodity X
ice of 2. Negative Price increase Complementary
. of commodity
~ase m
ty (X). Y decreases
reach the quantity
)sitive demanded of
of one commodity X