Demand

The demand function shows the relation be­tween the quantity demanded of a commodity by the consumers and the price of the product. These functions are probably the most important tools used by economists. While many variables deter­mine the quantity consumers wish to purchase in a market, the price of the commodity is perhaps the most important one. A demand function is a list of prices and the cor­responding quantities that individuals are willing and able to buy at a fixed point of time. We may note at the outset that demand is a function (or schedule), not a specific quantity. It is formally de­fined as a schedule of the total quantities of a com­modity or service that will be purchased at various prices at a particular point of time. Hence when we refer to the demand for meat or the demand for mo­tors cars in India, we are considering the amounts that consumers are willing and able to purchases at various prices. The word ‘demand’ is a broad con­cept referring to the entire schedu...

  Demand is generally classified on the basis of various factors, such as nature of a product, usage of a product, number of consumers of a product, and suppliers of a product. The demand for a particular product would be different in different situations. The different types of demand  are discussed as follows:- i.  Individual and Market Demand: It refers to the classification of demand of a product based on the number of consumers in the market.  Individual demand can be defined as a quantity demanded by an individual for a product at a particular price and within the specific period of time. It is influenced by the price of a product, income of customers, and their tastes and preferences. On the other hand, the total quantity demanded for a product by all individuals at a given price and time is regarded as market demand. ii. Organization and Industry Demand: It refers to the classification of demand on the basis of market. The demand for the products of an organi...

MEANING Income elasticity of demand (Ey) expresses the responsiveness of a consumer's demand for any good to the change in his income. It may be defined as the ratio of percentage change in the quantity demanded of a commodity to the percentage change in income. In the words of Lipsey," The responsiveness of demand for a product to changes in income is termed income elasticity of demand." Thus,           Ey= Percentage change in the quantity demanded / Percentage change in income                 = ΔQ/ΔY x Y/Q                     where,  ∆ = change                      Q= quantity demanded                      Y= income The coefficient Ey may be POSITIVE , NEGATIVE or ZERO depending upon the nature of a commodity. If an increase in income leads...

Elasticity of demand is the responsiveness of the quantity demanded of a  commodity  to changes in one of the variables on which demand depends. In other words, it is the percentage change in quantity demanded divided by the  percentage  in one of the variables on which demand depends.” The variables on which demand can depend on are: Price of the commodity Prices of related commodities Consumer’s  income , etc. Let’s look at some examples: The price of a  radio  falls from Rs. 500 to Rs. 400 per  unit . As a result, the demand increases from 100 to 150 units. Due to  government  subsidy, the price of wheat falls from Rs. 10/kg to Rs. 9/kg. Due to this, the demand increases from 500 kilograms to 520 kilograms. In both cases above, you can notice that as the price decreases, the demand increases. Hence, the demand for radios and wheat responds to price changes.

The law of demand expresses a relationship between the quantity demanded and its price. It depicts an inverse relationship between price and demand. STATEMENT OF LAW According to Marshall," The amount demanded increases with a fall in price, and diminishes with a rise in price." Prof. Samuelson writes," Law of Demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same." ASSUMPTIONS The assumptions of the law are as under:- 1) There is no change in the tastes and preferences of the consumer. 2) The income of the consumer remains constant. 3) There is no change in customs. 4) There should not be any substitutes of the commodity. 5) There should not be any change in the prices of other products. 6) There should not be any change in the quality of the product. 7) The habits of the consumer should remain unchanged. Given these assumptions, the law of demand operates. If...

1.  Useful for Business: It enables the business in general and the monopolists in particular to fix the price. Studying the nature of demand the monopolist fixes higher prices for those goods which have inelastic demand and lower prices for goods which have elastic demand. In this way, this helps him to maximize his profit. 2.  Fixation of Prices: It is very useful to fix the price of jointly supplied goods. In the case of joint products like paddy and straw, the cost of production of each is not known. The price of each is then fixed by its elastic and inelastic demand. 3.  Helpful to Finance Minister: It helps the Finance Minister to levy tax on goods. After levying taxes more and more on goods which have inelastic demand, the Government collects more revenue from the people without causing inconvenience to the people. Moreover, it is also useful for the planning. 4.  Fixation of Wages: It guides the producers to fix wages for labourers. They fi...