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Meaning of demand

Demand refers to the quantity of a good or service that the consumers are willing and able to purchase at various prices during a period of time.
Demand depends on the following factors:
  • Desire to purchase a good or service
  • Purchasing power i.e., resources to purchase those commodities
  • Willingness to spend i.e., use the resources for that purchase
If all the three conditions are satisfied, it is known as an effective demand.



If a person below poverty line wants to buy a car, it is only a desire, but not a demand as he cannot pay for the car. If a rich man wants to buy a car, and is willing to spend money to buy it, it is a demand as he will be able to pay for the car. Thus, a desire backed by purchasing power is demand.



  • Quantity demanded is always expressed at a given price, since different quantities may be demanded at different prices
  • Demand is a flow concept i.e. it is expressed as a quantity demanded per period of time. Thus, it is not the study of a single isolated purchase, but of a continuous flow of purchases. It is a dynamic concept
  • Single isolated purchase refers to demand by a single customer at various prices. Continuous flow of purchases is nothing but the market demand taken as a whole. Market demand is the sum total of all the individual demands

Demand for a good is determined by factors such as

  • Price of a commodity: The demand for a particular good is inversely related to price assuming other things being equal. Thus, if price increases, demand decreases and vice-versa. This is mainly due to income effect and substitution effect.
  • Price of related commodities: There are two types of related goods:
    • …Complementary goods: Consumption of complementary goods takes place simultaneously i.e., they are jointly used. For example: pen and ink, tea and sugar etc. If the price of one of the goods falls, the demand for the other will rise and vice-versa. Price of one commodity and demand for another commodity are indirectly related.
      Example: If the price of petrol falls, the demand for car will increase.
    • …Substitute goods: Here, the commodities are used in place of one another as alternative. As mentioned above, a fall in the price of one commodity will lead the consumers to shift to the purchase of the other commodity. If the price of a commodity falls, it becomes cheaper compared to other commodities. So, the consumers shift to the purchase of the cheaper commodity in place of the commodity, the price of which has not changed. Such goods are also known as substitutes. Price of one commodity and demand for another commodity are directly related
      Example: If the price of Coke falls, relative to the price of Pepsi, consumers will shift to the purchase of Coke from Pepsi, since it has now become comparatively cheaper. Coke and Pepsi are also known as substitute goods.
      Example: Tea and coffee, ink pen and ball pen, Pepsi and Coke etc.
  • Consumers’ income: Generally, higher the income of a consumer, higher is his purchasing power and thus, higher is the quantity demanded. Thus, if the income of a consumer increases, he will demand more of the good. However, there are certain commodities the demand of which falls with an increase in income. These goods are called inferior goods. In case of necessities, the demand will rise initially, but will gradually decline. This is because, people will become richer and their demand shifts from necessities to other durable goods like T.V., house, car etc. We generally discuss two types of Income: (a) Money income and (b) Real income. Money income deals with income of an individual in terms of money or cash. Real income deals with the purchasing power of money income.
  • Tastes and preferences: Consumers’ tastes and preferences for various goods keep changing, thus changing the demand for those goods. Demand would be high for those goods whose tastes and preferences are greater. Change can also be due to changes in fashion. Goods which are in fashion have greater demand compared to those which are not.
    Example: People now prefers to buy LCD’s and LED’s, when they want to buy TV.
  • Age factor: The age composition, for instance, plays a vital role in determining demand. Generally, a country with higher youth population spends more and saves lesser than a country with a greater population of the old. On the other hand, if the population of a country has more number falling under young age (below 14), then demand for toys, baby food, nursery, etc. increases.
  • Other factors: Demand is also determined by various other factors like:
    • …Demonstration effect: Demonstration effect refers to a change in demand by seeing another person use a particular product or commodity.
      Example - An individual’s demand for a refrigerator may be affected by seeing one in a neighbour’s or friend’s house.
    • Number of consumers: Size of the population of a country is an important determinant of demand. For instance, larger the population more will be the demand for certain goods like food grains, and pulses etc. When the number of consumers increases, there will be greater demand for goods.
    • …Distribution of income: Distribution of income affects consumption pattern and hence, the demand for various goods. If the government attempts redistribution of income to make it equitable, the demand for luxuries will decline and the demand for necessities of life will increase.
    • …Composition of the market: If the market consists of a large proportion of children, demand for toys, baby food, etc. increases. On the other hand, if the population consists of old people, demand for walking sticks, and reading glasses would be high.
    • …Innovation: When there is a change in the technology generally consumer prefers new version than the old one. So, change in the technology changes the demand for a product.
    • …Change in money supply: When money supply in the country increases it in turn increases the demand for goods. On the other hand, when the money supply decreases demand also comes down.
    • …Season or climatic condition: seasonal goods like umbrella. Raincoat etc will be more demanded in the rainy season than any other season.
    • …Income effect: Due to the fall in the price of a commodity, the consumer’s real income increases. This means, when the price of a commodity falls, the consumer can buy the same quantity at a lesser price or he can buy more quantity of the good at the same price
Example - If A’s income is ₹ 1,000, the price of good X is ₹ 100, he can buy 10 units of good X. If the price decreases to ₹ 80, he can buy 12 units (approximate) of it. Thus, his real income increases.


Note: In economics, by income, we refer to the income available to spend (disposable). Apart from these factors, literacy level, marital status, economic conditions etc. play an important role in determining the demand.

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