DEMAND AND LAW OF DEMAND

Demand for a commodity refers to quantities of the commodity which consumers are willing and able to purchase at various possible prices during a particular period of time.

FACTORS AFFECTING DEMAND

Price of the Commodity-It is the important determinant of the demand of a commodity. There is an inverse relationship between the commodity demand and commodity price. With the increase in the price of the commodity the demand for that commodity decreases and vice versa.
Income of the Consumer- It is the basic determinant that determines the purchasing power of the consumer. It can be of three types: (i) Normal goods- Normal goods are those goods for which demand increases with the increase in the income of the consumer and decreases with fall in income. (Direct relationship) (ii) Inferior goods – Inferior goods are those goods for which demand decreases with the increase in income of the consumer and vice versa. (Inverse relationship) (iii) Inexpensive necessities- In case of inexpensive necessities of life such as salt the demand increases with an increase in income up to a certain level and thereafter remains constant irrespective of the income.·
Consumer's tastes and preferences:It is also an important factor affecting the demand for a commodity . Sometimes a change in fashion and trend leads to change in consumer's tastes and preferences irrespective of price.
Price of related goods: The demand for a commodity is also affected by a change in the price of the related goods . Related goods can be of two types: (i) Substitute goods – It refers to those goods which satisfy the same type of need and can be used as an alternate to original goods that satisfy a given want. For Example: Tea and Coffee; with the increase in the price of tea, the demand for coffee increases.(ii) Complementary goods – It refers to those goods which are complementary to one another in the sense that they are consumed together or used jointly to satisfy a given want. For Example: Car and Petrol; with an increase in the price of petrol, the demand for Cars decreases.

It can be perceived that demand for commodity increases with increase in price of Substitute goods whereas demand for commodity decreases with increase in price of Complementary related goods.

Law of demand

The law of demand states other things remaining constant, quantity demanded for commodity increase when its price falls and quantity demanded for commodity decreases when its price increases.

For Example:

Individual demand schedule for Apples

PRICE (in Rs.)	QUANTITY DEMANDED (in kg)
100	1
80	2
60	3
40	4
20	5

Individual demand table or schedule shows different quantities of a commodity that would be purchased at different prices by a household during a given period.

Market demand schedule for Apples

PRICE (in Rs.)	QUANTITY DEMANDED (in kg)
PRICE (in Rs.)	A	B	Market Demand (A+B)
100	1	2	3
90	2	3	5
80	3	4	7
70	4	5	9

Market demand table or schedule shows different quantities of a commodity that all consumers are willing to purchase at different prices during a given period.

Exceptions to the law of demand:

1. Articles of snob appeal – It refers to luxurious goods that people of high prestige purchases to maintain their status in high society. The law of demand does not apply to commodities which serve as ‘Status Symbol’. For Example: Diamond.

2. Expectations about Future prices – If the consumers are aware of the future prices of the commodities then there will be a change in the demand of that commodity in present. If they expect a rise in the price of the commodity then consumers will purchase more of that commodity in present, thus increasing the demand in the present and vice versa.

3. Emergencies – Law of demand is not applied in case of emergencies like War, Famines, etc. In such cases consumers buy goods even at higher prices due to shortage

4. Quality - price relationship – Sometimes people associate higher- priced goods are of better quality than low priced goods. For Example: Some people buy more of ‘Lux Supreme’ instead of ‘Lux ’ assuming that ‘higher the price better the quality’

5. Giffen goods– Giffen goods are those inferior or non-luxury goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price. Example: Maize and Jowar

Change in quantity demanded and demand

Ø Movement along the demand curve – When the amount demanded for commodity changes as a result of the change in the price of that commodity and other factors remaining constant then it is known as a change in the quantity demanded and it causes a movement along the demand curve. It is of two types:

· Expansion in demand –When the quantity demanded for commodity rises due to its fall in price, other things remaining constant then it is known as ‘expansion in demand’.

· Contraction in demand – When the quantity demanded for a commodity decreases due to its rise in price, other things remaining constant then it is known as ‘contraction in demand’

Ø Shift in the demand curve – When the amount demanded of commodity changes because of the change in factors other than its own price then it is called a change in demand and it cause shift in the demand curve. It is of two types:

· Increase in demand – Increase in demand refers to a situation when a consumer buys a larger amount of a commodity at the same price because of change in factors other than the commodities own price. It causes a rightward shift in the demand curve.

· Decrease in demand – It refers to a situation when the consumers buy a smaller quantity of the commodity at the same price. It causes a leftward shift in the demand curve.