Demand And Law Of Demand Flashcards
What is demand?
Demand for a commodity, is an effective desire, refers to the quantities of a commodity which consumers are willing and able to purchase at various possible prices during a particular period of time.
What are the types of Demand?
- Individual Demand and Market Demand
- Ex ante and Ex post Demand
- Joint Demand
- Derived Demand
- Composite Demand
INDIVIDUAL DEMAND
Individual demand refers to the quantities of a commodity that an individual consumer is willing to purchase at various prices during a given period of time. (Also called household demand)
MARKET DEMAND
Market demand refers to the total quantities of a commodity that all the households are willing to buy at various prices during a given period of time.
EX ANTE DEMAND
Ex ante demand refers to the amount of goods that consumers want to or willing to buy during a particular time period.
EX POST DEMAND
Ex post demand refers to the amount of the goods that the consumers actually purchase during a specific period.
JOINT DEMAND
Joint demand refers to the demand for two or more goods which are used jointly or demanded together.
E.g.: cars and petrol, butter and bread, milk and sugar.
DERIVED DEMAND
The demand for a commodity that arises because of the demand for some other commodity is called derived demand.
For instance, demand for steel, bricks, cement, stones, wood, etc. is a derived demand— derived from the demand for houses and other buildings.
COMPOSITE DEMAND
Demand for goods that have multiple uses are called composite demand.
(Such as use of steel for making various things like bus bodies, utensils, etc.)
What are the factors affecting demand?
- Price of the commodity
- Income of the consumer
- Consumers’ taste and preferences
- Prices of related goods
- Consumers’ expectations
- Consumer-Credit facilities
- Demonstration Effect
- Size and composition of population
- Distribution of Income
- Climatic factor
- Government Policy
What are the types of goods?
- Normal goods
- Inferior goods
- Inexpensive necessities
- Substitute goods
- Complementary goods
NORMAL GOODS
Normal goods are those goods the demand for which increases with increase in income of the consumers, and decreases with fall in income.
(Luxury goods: television, clothes, refrigerator,etc.)
INFERIOR GOODS
Inferior goods are those goods the demand for which falls with increase in income of the consumer.
(Maize and jowar)
INEXPENSIVE NECESSITIES
The demand of these goods remains the same no matter how much increase or decrease in income occurring.
(Salt, matchbox,etc.)
SUBSTITUTE GOODS
Substitute goods are those goods which satisfy the same type of need and hence can be used in place of one another to satisfy a given want.
(Tea and coffee, coke and Pepsi)
COMPLEMENTARY GOODS
Complementary goods are those goods which are complementary to one another in the sense that they are used jointly or consumed together to satisfy a given want.
What is Demand Function?
A demand function states the relationship between the demand for a product and its various determinants.
What is law of demand?
Law of demand states that, other things remaining equal, the quantity demanded of a commodity increases when its price falls and decrease when its price rises. (Inverse relationship between the price and the quantity demanded of a commodity.)
What is demand schedule and its types?
The demand schedule is a tabular statement that shows different quantities of a commodity that would be demanded at different prices during a given period.
- Individual demand schedule
- market demand schedule
What is demand curve?
Demand curve is a graphical presentation of the law of demand.
- Individual demand curve
- Market demand curve
What are the reasons for downward slope of the demand curve?
- Law of diminishing marginal utility
- Income effect
- Substitution effect
- Increase in number of consumers
- Several uses of a commodity
What are the exceptions to the law of demand?
- Giffen goods
- Articles of Snob appeal (conspicuous consumption.)
- Expectations about future prices
- Emergencies
- Quality-Price Relationship
- Change in Fashion
GIFFEN GOODS
Giffin goods are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price.
What is movement along the demand curve? (Change in quantity demanded)
When the amount demanded of a commodity changes (rises or falls) as a result of change in its own price, while other determinants of demand (like income taste and prices of related goods) remain constant, it is known as change in the quantity demanded.
