LAW OF DEMAND
✪ DEMAND ANALYSIS
DEMAND ANALYSIS:
This economic variable 'Demand'is important in business decision making and policy formulations. it determines the magnitude of economic activities, the size and pattern of production. Demand is always related to price and particular time period.
ஃ DD =Desire + Ability to pay + Willingness to pay
Demand Schedule: When the relationship between quantities demanded of a commodity and prices are tabulated, it is called a demand schedule.
Price per litre of milk (Rs.) |
Quantity demanded (in litres) |
30 25 20 15 10 |
1 2 3 4 5 |
This schedule refers to the quantity demanded by an individual. when the quantity demanded by all the consumers is summed up, market demand schedule can be obtained. it can be represented as follows:
Price Per Litre (Rs.) |
DD of Consumer A |
DD of Consumer B |
DD of Consumer C |
Total DD (A+B+C) |
30 25 20 15 10 |
1 2 3 4 5 |
2 3 4 5 6 |
3 4 5 6 7 |
6 9 12 15 18 |
The demand schedule can be used to draw the demand curve. when the relationship between price and quantity is plotted on a graph, a downward sloping demand curve can be obtained. This known as the demand curve. It has a negative slope. It indicates the inverse relationship between price and quantity demanded.
This can be explained with the help of the following diagram:
THE LAW OF DEMAND
the functional relationship between price and quantity demanded of a commodity is explained by the law of demand. this law is also known as the 'First Law of Purchase'. the law propounded by the famous economist Alfred Marshall states that " other things being equal if the price of a commodity falls, the quantity demand of it will raise and if the price of the commodity rises, it quantity demanded will decline."
FACTOR AFFECTING DEMAND
1. Consumer's Taste and Habits:
- Consumer taste and habits affect the demand for goods and services in the market.
- It is to be noted that, usually the habits of a consumer tend to remain the same or constant.
for e.g. Demand for alcohol,tea,coffee, etc. depend on a consumer's habit.
2. INCOME DISTRIBUTION:
- Income distribution in an economy also affects the overall quantity demanded.
- On the other hand, if the distribution of income is even, then the overall demand will be greater.
3. PRICE:
- Price is one of the most important factors that affect demand.
- Hence, we can conclude that, demand varies inversely with price.
4.TAXATION POLICY:
- Change in government policy also affects the demand for various goods and services.
- Similarly, a high tax rate will decrease the demand in general.
5. POPULATION:
- If the country's overall population is large, there will be a high market demand for various goods and services.
- Similarly, if the population is low, the overall demand will be comparatively low.
TYPES OF DEMAND
✬ Demand refers to a desire backed by the 'ability to pay' and 'willingness to spend' for a particular commodity.demand can be various types. They are as follows:
1. COMPOSITE DEMAND:
✧ When a commodity is demanded for satisfying several wants at a time, it is known as composite demand.
✧ For e.g. demand for electricity.
2. JOINT DEMAND:
✧ When to or more goods are demanded jointly to satisfy a single need, it is known as joint demand.
✧ Demand for complementary goods is a joint demand.
✧ For e.g. To make tea, we need tea powder, milk and sugar.
3. DIRECT DEMAND:
✧ When a commodity or a service is demanded to satisfy human wants directly, it is known as direct demand.
✧ Consumer goods have direct demand.
✧ For e.g. consumer goods like cloths, food soft drinks etc.
4. INDIRECT DEMAND:
✧ When a commodity or a services is demanded indirectly, i.s. to produce consumer goods , it is known as indirectly demand.
✧ For e.g. Demand for land, labour, capital, etc.
5. COMPETITIVE DEMAND:
✧ When to or more commodities can be used interchangeably to satisfy a single want, then such types of commodities are known as competitive demand.
✧ For e.g. Pepsi and coke, taj mahal tea and society tea, etc.
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