DEMAND — COMPLETE NOTES

Individual Demand, Market Demand, Demand Function, Schedules & Curves

Prepared from the uploaded slides/images. All concepts, examples, formulas, schedules and visible curves from the
material are included in note form. The graphs below are clean redrawings of the curves shown in the slides.

1. Determinants of Individual Demand

Demand for a commodity increases or decreases due to a number of factors. The various factors affecting demand are
discussed below.

1. Price of the Given Commodity

• It is the most important factor affecting demand for the given commodity.

• Generally, there exists an inverse relationship between price and quantity demanded.

• As price increases, quantity demanded falls due to decrease in the satisfaction level of consumers.

• Example: If the price of a given commodity such as tea increases, its quantity demanded will fall due to the rise in its
price.

2. Price of the Related Goods

Demand for a commodity is also affected by changes in the price of related goods.

A. Substitute Goods
• Substitute goods are goods which can be used in place of one another for the satisfaction of a particular want, e.g.
tea and coffee.

• An increase in the price of substitute goods leads to an increase in the demand for a given commodity, and vice
versa.

• Example: If the price of a substitute good such as coffee increases, demand for tea will rise because tea becomes
relatively cheaper compared with coffee.

• Thus, demand for a given commodity is directly affected by changes in the price of substitute goods.

B. Complementary Goods
• Complementary goods are goods which are used together to satisfy a particular want, e.g. tea and sugar.

• An increase in the price of complementary goods leads to a decrease in demand for the given commodity, and vice
versa.

• Example: If the price of a complementary good such as sugar increases, demand for tea will fall because it becomes
relatively costlier to use both goods together.

• Thus, demand for a given commodity is inversely affected by changes in the price of complementary goods.

3. Income of the Consumer

Demand for a commodity is also affected by the income of the consumer. However, the effect of change in income on
demand depends on the nature of the commodity.

• Normal good: An increase in income leads to a rise in its demand, while a decrease in income reduces the demand.

• Inferior good: An increase in income reduces the demand, while a decrease in income leads to a rise in demand.

• Example: Suppose income increases. The consumer reduces consumption of toned milk and increases consumption
of full-cream milk. Here, toned milk is an inferior good for the consumer and full-cream milk is a normal good.

Demand Notes • Page 1

4. Tastes & Preferences
• Tastes and preferences of the consumer directly influence the demand for a commodity.

• They include changes in fashion, customs, habits, etc.

• If a commodity is in fashion or is preferred by consumers, demand for such a commodity rises.

• On the other hand, demand falls if consumers have no taste for that commodity.

5. Expectation of Change in Price in Future

• If the price of a certain commodity is expected to increase in the near future, people will buy more of that commodity
than what they normally buy.

• There exists a direct relationship between expectation of change in prices in future and change in demand in the
current period.

• Example: If the price of petrol is expected to rise in future, its present demand will increase.

2. Determinants of Market Demand

There are certain special features of market demand which are not observed in individual demand. Market demand is
influenced by all the factors affecting individual demand for a commodity. In addition, it is also affected by the following
factors:

A. Size and Composition of Population

• Market demand for a commodity is affected by the size of the population in the country.

• Increase in population raises market demand, while decrease in population reduces market demand.

B. Distribution of Income
• If income in the country is equitably distributed, market demand for commodities will be more.

• However, if income distribution is uneven, i.e. people are either very rich or very poor, market demand will remain at a
lower level.

C. Season and Weather

• Seasonal and weather conditions also affect market demand for a commodity.

• Example: During winter, demand for woollen clothes and jackets increases, whereas market demand for raincoats
and umbrellas increases during the rainy season.

Demand Notes • Page 2

3. Change in Quantity Demanded vs. Change in Demand
Change in Quantity Demanded
• Quantity demanded refers to the specific quantity to be purchased against a specific price of the commodity.

• Whenever demand for a given commodity changes due to a change in its own price, such change in demand is
known as Change in Quantity Demanded.

• Example: If demand for Pepsi changes due to a change in its own price, such change in demand for Pepsi is known
as change in quantity demanded.

Change in Demand
• Whenever demand for the given commodity changes due to factors other than price, such change in demand is
known as Change in Demand.

• Example: If demand for Pepsi changes due to a change in price of Coke, change in income or a change in taste, such
change in demand for Pepsi is known as change in demand.

Quick distinction
Basis Change in Quantity Demanded Change in Demand

Cause Change in own price Factors other than own price

Example Pepsi demand changes because Pepsi price

Pepsi
changes
demand changes because Coke price, income or taste changes

Demand Notes • Page 3

4. Demand Function
Demand function shows the relationship between the quantity demanded for a particular commodity and the factors
influencing it.

5. Individual Demand Function

It refers to the functional relationship between individual demand and the factors affecting individual demand.
Dx = f(Px, Pr, Y, T, F)

Where:

• Dx = Demand for Commodity X

• Px = Price of the given Commodity X

• Pr = Price of Related Goods

• Y = Income of the Consumer

• T = Tastes and Preferences

• F = Expectation of Change in Price in Future

6. Demand Schedule
A demand schedule is a tabular statement showing various quantities of a commodity being demanded at various
levels of price, during a given period of time. It shows the relationship between the price of the commodity and its
quantity demanded.

7. Individual Demand Schedule

It refers to a tabular statement showing various quantities of a commodity that a consumer is willing to buy at various
levels of price, during a given period of time.

Price (■) Quantity Demanded of Commodity X (units)

5 1

4 2

3 3

2 4

1 5

This schedule shows the inverse relationship: as price falls from ■5 to ■1, quantity demanded rises from 1 unit to 5 units.

Demand Notes • Page 4

8. Demand Curve
Demand curve is a graphical representation of the demand schedule. It is the locus of all the points showing various
quantities of a commodity that a consumer is willing to buy at various levels of price, during a given period of time,
assuming no change in other factors.

9. Individual Demand Curve

It refers to a graphical representation of individual demand schedule.

Demand Notes • Page 5

10. Market Demand Curve
It refers to a graphical representation of market demand schedule.

Important point from the slides:

The market demand curve is flatter than the individual demand curve because the proportionate change in market
demand is greater than the proportionate change in individual demand.

Demand Notes • Page 6

11. Slope of a Demand Curve
Slope of a curve is defined as the change in the variable on the Y-axis divided by the change in the variable on the
X-axis. Therefore, the slope of the demand curve equals the change in price divided by the change in quantity.
Slope of Demand Curve = ∆P / ∆Q

Key observations
• Demand curve slopes downward.

• It shows an inverse (negative) relationship between the price of a commodity and its quantity demanded.

• The market demand curve is flatter than the individual demand curve because proportionate change in market
demand is greater than proportionate change in individual demand.

Demand Notes • Page 7

12. Exam-Ready Revision Sheet
Topic Key point

Determinants of Individual Demand Price of given commodity; price of related goods (substitutes and complements); income; tastes & prefere

Determinants of Market Demand All individual-demand factors + size/composition of population, distribution of income, season & weather.

Substitutes Used in place of one another; price of substitute ↑ → demand for given commodity ↑.

Complements Used together; price of complementary good ↑ → demand for given commodity ↓.

Normal Good Income ↑ → demand ↑; income ↓ → demand ↓.

Inferior Good Income ↑ → demand ↓; income ↓ → demand ↑.

Change in Quantity Demanded Caused by change in own price.

Change in Demand Caused by factors other than own price.

Individual Demand Function Dx = f(Px, Pr, Y, T, F).

Demand Schedule Tabular relationship between price and quantity demanded.

Demand Curve Graphical representation of demand schedule; generally downward sloping.

Slope ∆P / ∆Q.

Demand Notes • Page 8