What is Demand?

Demand for a commodity refers to the quantity of the commodity that people are willing to
purchase at a specific price per unit of time, other factors (such as price of related goods, income,
tastes and preferences, advertising, etc) being constant. Demand includes the desire to buy the
commodity accompanied by the willingness to buy it and sufficient purchasing power to
purchase it. For instance-Everyone might have willingness to buy Mercedes-S class but only a
few have the ability to pay for it. Thus, everyone cannot be said to have a demand for the car
Mercedes-s Class.
Demand may arise from individuals, household and market. When goods are demanded by
individuals (for instance-clothes, shoes), it is called as individual demand. Goods demanded by
household constitute household demand (for instance-demand for house, washing machine).
Demand for a commodity by all individuals/households in the market in total constitute market
demand.

Demand Function
Demand function is a mathematical function showing relationship between the quantity
demanded of a commodity and the factors influencing demand.
Dx = f (Px, Py, T, Y, A, Pp, Ep, U)
In the above equation,
Dx = Quantity demanded of a commodity
Px = Price of the commodity
Py = Price of related goods
T = Tastes and preferences of consumer
Y = Income level
A = Advertising and promotional activities
Pp = Population (Size of the market)
Ep = Consumers expectations about future prices
U = Specific factors affecting demand for a commodity such as seasonal changes, taxation
policy, availability of credit facilities, etc.

Law of Demand
The law of demand states that there is an inverse relationship between quantity demanded of a
commodity and its price, other factors being constant. In other words, higher the price, lower the
demand and vice versa, other things remaining constant.

Demand Curve
Demand curve is a diagrammatic representation of demand schedule. It is a graphical
representation of price- quantity relationship. Individual demand curve shows the highest price

which an individual is willing to pay for different quantities of the commodity. While, each point
on the market demand curve depicts the maximum quantity of the commodity which all
consumers taken together would be willing to buy at each level of price, under given demand
conditions.

Demand curve has a negative slope, i.e, it slopes downwards from left to right depicting that with
increase in price, quantity demanded falls and vice versa. The reasons for a downward sloping
demand curve can be explained as follows1. Income effect- With the fall in price of a commodity, the purchasing power of consumer
increases. Thus, he can buy same quantity of commodity with less money or he can
purchase greater quantities of same commodity with same money. Similarly, if the price
of a commodity rises, it is equivalent to decrease in income of the consumer as now he
has to spend more for buying the same quantity as before. This change in purchasing
power due to price change is known as income effect.
2. Substitution effect- When price of a commodity falls, it becomes relatively cheaper
compared to other commodities whose price have not changed. Thus, the consumer tend
to consume more of the commodity whose price has fallen, i.e, they tend to substitute that
commodity for other commodities which have not become relatively dear.
3. Law of diminishing marginal utility- It is the basic cause of the law of demand. The
law of diminishing marginal utility states that as an individual consumes more and more
units of a commodity, the utility derived from it goes on decreasing. So as to get
maximum satisfaction, an individual purchases in such a manner that the marginal utility
of the commodity is equal to the price of the commodity. When the price of commodity
falls, a rational consumer purchases more so as to equate the marginal utility and the
price level. Thus, if a consumer wants to purchase larger quantities, then the price must
be lowered. This is what the law of demand also states.

Shifting the Demand Curve Vs. Moving Along the Demand

Curve
Demand for products is ever-evolving because certain factors increase or decrease demand for
specific products. An awareness of what the demand curve is, and what shifting it and moving
along it mean, can clue you in to business changes you might need to implement with your
products.

Demand Curves
The demand curve is a graph used in economics to illustrate how much of a product or service
will be bought at any price. There are two types of demand curves: individual curves, which
count how much an individual consumer will purchase, and market curves, which consist of total
market demand. The demand curve is graphed on X and Y axes, where price is listed on the Y
axis and quantity sold is on the X axis. The demand curve can either shift entirely or experience
movement along part of its curve.

Shifting
The demand curve shifts when consumers change their perceptions about the worth of a product.
If consumers decide they are willing to pay higher prices for a product or want to purchase more
of it, the demand curve shifts to the right. The less consumers are willing to pay for a product,
the more the demand curve shifts to the left. In other words, heightened perceived worth of a
product shifts the demand curve right, while decreased perceived worth shifts the demand curve
to the left. Factors that can shift the demand curve either way include changes in consumer
expectations for a certain product, changes in discretionary income and changes in trends and
what is fashionable.

Moving
Unlike shifts in demand curves that are dictated by consumer interest, movement in the demand
curve occurs when the price of a product changes. For example, movement can occur if a candy
manufacturer raises or lowers the price of a certain type of candy. Altering candy prices could
cause consumers to buy more candy or less candy, depending on where the new price is set. The
demand curve itself does not move; rather, there is movement along the curve.