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Demand
It is an effective desire
which is backed up by both willingness and ability of the consumer to pay for
the goods. It is the amount of goods which is bought at the price at the given
period of time. Conditions for the Effective demand:
a. Desire
for specific commodity.
b. Sufficient
resources to purchase the desired commodity.
c. Willingness
to spend the resources
Types of Demand:
1. Price demand:
Price
demand refers to the different quantities of the commodity or service which
consumers will purchase at a given time and at given prices, assuming other
things remaining the same. It is the price demand with which people are mostly
concerned and as such price demand is an important notion in economics. Price
demand has inverse relation with the price. As the price of commodity increases
its demand falls and as the price decreases, its demand rises.
2.
Income demand:
Income
demand refers to the different quantities of a commodity or service which
consumers will buy at different levels of income, assuming other things
remaining constant. Usually the demand for a commodity increases as the income
of a person increases unless the commodity happens to be an inferior product.
For example, coarse grain is a cheap or inferior commodity. The demand for such
commodities decreases as the income of a person increases. Thus, the demand for
inferior or cheap goods is inversely related with the income.
3.
Cross demand:
When
the demand for a commodity depends not on its price but on the price of other
related commodities, it is called cross demand. Here we take closely connected
or related goods which are substitutes for one another.
For
example, tea and coffee are substitutes for one another. If the price of coffee
rises, the consumer will be induced to buy more of tea and, hence, the demand
of tea will increase. Thus in case of substitutes, when the price of one
related commodity rises, the demand of the other related commodity increases
and vice-versa.
But in
case of complimentary or joint demand goods, e.g., pen and ink, horses and
carriages etc. when the price of one commodity rises, the demand for it will
fall and as a result of it the demand for the other joint commodity also falls
(even though its price remains the same). For example, if the price of horses
increases, their demand will fall and as a result of it the demand for
carriages will also fall even though their price does not change.
4.
Direct demand:
Commodities
or services which satisfy our wants directly are said to have direct demand.
For example, all consumer goods satisfy our wants directly, so they are said to
have direct demand.
5. Derived demand or Indirect demand:
Commodities
or services demanded for producing goods which satisfy our wants directly are
said to have derived demand. For example, demand for a factor of production
(say labor) is a derived demand because labor is demanded to help in the
construction of houses which will directly satisfy consumers’ demand.
Thus,
the demand for labor which helps us in making a house in a case of indirect or
derived demand. The demand for labor is called derived demand because its
demand is derived from the demand of a house.
6.
Joint demand:
In
finished products as in case of bread, there is need for so many things—the
services of the flour mill, oven, fuel, etc. The demand for them is called
joint demand. Similarly for the construction of a house we require land, labor,
capital, organization and materials like cement, bricks, lime, etc. The demand
for them is, thus, called a ‘joint demand.’
7.
Composite demand:
A
commodity is said to have a composite demand when its use is made in more than
one purpose. For example the demand for coal is composite demand as coal has
many uses—as fuel for a boiler of a factory, for domestic fuel, for oven for
steam-making in railways engine, etc.
Determinants of Demand
Price
of the given commodity
Other
things remaining constant, the rise in price of the commodity, the demand for
the commodity contracts, and with the fall in price, its demand increases.
Price of related goods
Demand
for the given commodity is affected by price of the related goods, which is
called cross price demand. There
are two types of related goods which are as follows:
a. Substitute Goods
These goods are those goods which can be used
in absence of another goods. In case of these goods, if the price of one rises,
the demand for another rises and vice-versa. For eg: Tea and coffee are substitute
goods, if the price of tea increases, assuming price of coffee as constant, the
demand for coffee will increase and vice-versa.
b. Complementary Goods
Those goods are complementary goods which are
jointly used to satisfy a particular want. In case of these goods, if there is
rise in price of one good assuming price
of related goods constant, the demand for the other good will fall and
vice-versa. For eg: Pen and Ink, if price of pen rises, assuming price of ink
constant, the demand for ink will decrease.
Income of the individual consumer
Change in
consumer’s level of income also influences their demand for different
commodities. Normally, the demand for certain goods increase with the
increasing level of income and vice versa.
Tastes and preferences
The taste
and preferences of individuals also determine the demand made for certain goods
and services. Factors such as climate, fashion, advertisement, innovation, etc.
affect the taste and preference of the consumers.
Expectation of change in price in
the future
If the price of the
commodity is expected to rise in the future, the consumer will be willing to
purchase more of the commodity at the existing price. However, if the future
price is expected to fall, the demand for that commodity decreases at present.
Size and composition of population
The market demand
for a commodity increases with the increase in the size and composition of the
total population. For instance, with the increase in total population size,
there is an increase in the number of buyers. Likewise, with an increase in the
male composition of the population, the demand for goods meant for male
increases.
Season and weather
The market demand
for a certain commodity is also affected by the current weather conditions. For
instance, the demand for cold beverages increase during summer season.
Distribution of income
In
case of equal distribution of income in the economy, the market demand for a
commodity remains less. With an increase in the unequal distribution of income,
the demand for certain goods increase as most people will have the ability to
buy certain goods and commodities, especially luxury goods.
Some Parts are Adopted from:
a. https://www.businesstopia.net/economics/macro/concept-demand-function-types
b. https://www.yourarticlelibrary.com/economics/demand/7-important-kinds-of-demand-explained/38926
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