Meaning of Demand, Demand Function and Types of Demand

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Meaning of Demand

Demand is the effective desired which is backed by willingness to pay and ability to pay for the goods at the certain price, place and time.

Demand is the real concept.

Consumers most have the ability to pay the goods to be the demand. 

Thus, demand is the willingness and ability of consumers to purchase a particular commodity at a given price over a time period. 

Desire cannot be the demand itself.

The consumer must have ability to pay and willingness to pay for fulfillment of desire to be demand.

But desire is only a dream.

It is the imaginary concept.

Desire does not need any ability to pay. 

If a beggar has the desire of a car then that is not demand because he does not have the ability to pay the price.

If a rich man wants to buy the same car, it can be demand because he or she has ability, willingness and desire to purchase the car.

 

Differences between Demand and Desire

SN	Demand	Desire
(i)	Demand is the effective desire or want backed up by ability and willingness to pay.	Desire is simply human want or wish.
(ii)	It is limited.	It is unlimited.
(iii)	It is always for the things available in the market.	It may be for intangible and imaginary things too.
(iv)	It has a market value.	It may or may not have market value.
(v)	Ability and willingness to pay is required to be the demand.	Ability and willingness to pay are not required to be the desire.
(vi)	It is expressed with reference to price and time duration.	It is not expressed with price and time duration.

 

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Demand Function (Demand Equation)

Demand function is the mathematical expression of the relationship between demand for a commodity and its determinants.

Assuming other variable constant, we assume only the relationship between price of commodity and its quantity demanded.

It is the equation to represent functional relationship between quantity demand and its determining factor.

 

Qd = ƒ(P, Y, Ps, A)

 

Where:

Qd = Quantity demanded is depended variable

ƒ  = Function           

Various independent variables are:

P = Price of goods

Y = Income 

Ps = Prices of substitute goods

A= Advertisement

 

Keep in Mind

Simple linear demand equations can be written: D? = a − b P? Where D?  = Demand for commodity ? P? = Price of commodity ? a = Autonomous demand b = Slope of demand curve Since, there is inverse relationship between price and quantity demanded by consumer. So, the slope of the demand curve (b) is negative.

 

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Types of Demand

There are different types of demands; out of them some important demands are given below:

(1) Price Demand

Demand primarily depends upon price is called price demand.

This demand is sensitive or responsive due to the change in price. In case of normal goods, demand increases with fall in price and vice versa.

But in case of Giffen goods demand increases even there is rise in price.

 

In the figure, demand in kg per day is shown on the X axis and price in Rs per kg is presented in Y-axis.

 

 

The demand curve DD is downward sloping.

It shows that demand decreases with rise in price and increases with fall in price.

 

 

(2) Income demand

Demand dependent upon income of the consumer is called income demand.

This demand is responsive to the change in income.

In case of normal goods, demand increases with rise in income and vice versa.

But in case of Giffen goods demand decreases when there is increase in income.

 

 

 

(3) Cross demand

The demand of any goods X due to change in the price of Y goods is called cross demand.

The demand of substitute goods and complementary goods is the cross demand.

 

(a) Substitute goods

Substitute goods are competitive goods which can be substituted by the use of other goods like Coca Cola and Pepsi, tea and coffee etc.

The demand of substitute goods is directly related with the price of its substitute.

So, the demand curve of substitute goods is upward sloping as side:

 

  

 

(b) Complementary goods

Complementary goods are jointly demanded by the consumer.

Car and petrol, pen and ink etc. are the complementary goods.

The demand of complementary goods is inversely related with the price of its complement.

So, the demand curve of complementary goods is downward sloping as side:

 

 

 

(4) Direct demand

Demand for goods and services made to the final consumers to satisfy their wants or needs is called direct demand.

For example, the demand of food in the hotel is the direct demand.

 

(5) Derived demand

Demand for a goods and services made according to direct demand of other goods or services is called derived demand.

For example demand of rod, cement, bricks etc. is the derived demand of the demand of house.

 

(6) Joint demand

Demand made for two or more goods and services to satisfy single need or want is called joint demand.

For example, tea, sugar are demanded together to satisfy a single need.

The complementary goods are jointly demanded.

 

(7) Composite demand

Demand for a single commodity made in order to use for different purposes is called composite demand.

In this case, commodity is one but have various numbers of uses.

For example, the electricity is demanded for lighting, heating, to operate fan, computer, television, radio etc.

 

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