Chapter 3 Part A 

Q1   What is demand and Features of demand?

Ans: It can be seen that demand means desire but in economics demand not only means desire but demand means desire plus ability to pay plus willingness to spend. It can be shown as

Demand= Desire + Ability to Pay + Willingness to spend

The following conditions are required for demand

·         Desire

·         Purchasing power or ability to pay

·         Willingness to spend

Goods are demanded as they have utility. Demand is that quantity of the commodity which a consumer is ready to buy at a particular period of time and at a particular price. The reference of time and price is important for demand.

The features of demand are:

·         Utility is the base of demand

·         Demand is a relative concept

·         Reference of time and price is necessary for demand.

Q2   What is individual demand and Market demand with schedule?

Ans:

Individual demand:

                                       It is tabular representation of the demand made by an individual into the market ate a particular period of time and at a particular price. It can be explained with the help of table.

Price of sugar (RS)	Demand (in KG)
10	50
20	40
30	30
40	20
50	10

It can be clearly seen that when price was Rs. 10 the quantity demanded was 50 KG but when price rose to RS. 50 the quantity demanded was 10 KG.

Market Demand:

                                  It is a tabular representation of the demand made by all the consumer in the market at a given period of time and at a given price. It can be obtained by horizontal summation of all the consumers. It can be explained with the help of a table here it is assumed that there are only three consumer in the market.

Price of sugar	Consumer A	Consumer B	Consumer C	Total (A+B+C)
10	10	11	12	33
20	9	10	11	30
30	8	9	10	27
40	7	8	9	24
50	6	7	8	21

 

It can be seen that the demand varies as the price changes that means when price was RS 10 the total demand was 33 Kg but as price rose to RS 50 the total demand also fall to 21 Kg.

Q3 Factors Affecting Demand

Ans: The factors affecting demand are as follows:

1. Price:

                 Price is the factor which affects the demand indirectly that means there is an inverse relationship between price and demand. When the price rise the demand falls and when price falls demand rises.

2. Income:

                   Income is directly related to demand that is there is a direct relationship between income and demand. When the income of the consumer rise the demand also rises.

3. Populations:

                             Population also effects the demand as when the population rises the demand also rises and when population declines the demand also falls.

4. Taste, habits and fashion:

                                                   Taste, habit and fashion also brings a change in the demand for that commodity and if there is change in fashion it could lead to change in the demand of that commodity.

5. Price of substitute and complementary goods:

                                                                                           The price of substitute and complementary goods also affects the demand that means if the price of coffee rises the demand for tea will rise and if the price of petrol falls there will be an increase in demand for car.

6. Distribution of income:

                                                This is one more factor which affects the demand as if there will be equal distribution of income the demand will rise but if there is unequal distribution of income it could lead to change in the demand.

7. Future expectations:

                                         Future expectation also leads to a change in the demand as if a consumer expects to fall in the price in near future he will purchase less at the time.

8. Advertisement:

                                  The consumer thinks that the product shown on television and radio are of good quality so the demand for such goods rises.

9. Taxation policy:

                                  Taxation policy made by the government also bring a change in the demand for the goods demanded in the market.

10. Other Factors:

                                 Other factors like tradition, social factors etc. also bring a change in the demand for the commodity.

Q4   Types of demand

Ans the types of demand are

1. Direct demand:

                                 Direct demand means the goods demanded by the consumer to satisfy wants directly. For e.g. consumers goods have direct demand.

2. Indirect demand:

                                    It is also called as derived demand. This are the goods which satisfy the human wants indirectly. For e.g. factors of production have indirect demand.

3. Joint demand:

                                It is demand where to commodity are demanded to satisfy a single want of the consumer. For e.g. pen and ink have joint demand.

4. Composite demand:

                                         It is demand which is made by the consumer to satisfy multiple want at a time. For e.g. electricity have composite demand.

5. Competitive demand:

                                            It is a demand which is made due to competes among other commodity. For e.g. tea and coffee are an example of competitive demand.

Q5    What is law of Demand and its assumptions, its exceptions?

  Ans

 Introduction:

The law was introduced by Prof. Marshall in his books principle of economics published in the year 1890

Statement:

 According to Prof. Marshall other things remaining constant “Higher the prices of the commodity smaller is the quantity demanded lower the prices of the commodity larger in the quantity demanded”

Explanation:

The law explains us the inverse relationship between price and demand. The law explains that when the price of the commodity rise there will be fall in its demand. This could be explain with the help of diagram and schedule.

Price of Apples	Demand for Apples
10	50
20	40
30	30
40	20
50	10

                  

As per the above schedule it can be seen that there is an inverse relationship between price and demand. When the prices where Rs. 10 the quantity demanded was 50 Kg but when price rose from Rs. 10 to Rs. 50 the demand falls from 50 Kg to 10 Kg. This shows that price is inversely related to demand.

Assumptions:

1.  Size and composition of the population remains the same:

                                                                                                              It is assumed that the size and the composition of the population remains same as if there is a change in the population it could lead to a change in the demand for the commodity even at the same price.

2. Income of the consumer remains constant:

                                                                                  It is assumed that the income of the consumer remains same as if there is the increase in the income it could bring a rise in the demand at the same price or at higher prices.

3. Taste habit and fashion remain constant:

                                                                                 It is assumed that the taste habit fashion of the consumer remains constant as change in taste leads to change in the demand for the commodity at the same price.

4. No change in future exception about price:

                                                                                  In the law it is assumed that there is no change in future exception about price as if a consumer except to rise in price in future then he will purchase more at higher price too.

5. Price of substitute and complementary goods remains same:

                                                                                                                  It is assumed that the price of substitute and complementary goods remains same as if price of tea rise so its demand will fall but demand for coffee will rise at same price.

6. Government policy remains the same:

                                                                          It is assumed that the government remains the same as policy like taxation may bring a change in the demand.

     

Exceptions:

1. Giffen Goods: 

                              The Giffen goods means goods of low quality. It is also called as inferior goods. The goods are named after Sir Robert Giffen. He observed that in England that when the price of bread the demand for it also falls and demand for meat rises. But according to law the demand for bread used rise but it falls. That is the reason why this is exception to law.

2. Prestige goods:

                                 This type of goods have “snob appeal” that means they are consider as sign of prestige for rich people and as the price of such commodity rise there demand also rises.

3. Price Illusions:

                                 People have a thinking that the goods of high price are of good quality like branded so as the price of the commodity rises their demand also rises.

4. Demonstration Effect:

                                            In this the tendency of low income people is that they try there standard to be same as rich people so they purchase luxury item like washing machine, latest mobile etc. so with a rise in price there is no change in the demand for such commodity.

5. Ignorance:

                        Some consumers are unaware of the rates of the commodity so they purchase more of a commodity even at higher prices.

6. Speculation:

                           When a consumer predicts to a rise in the price for a commodity in the future he purchase more of such quantity at higher price so the demand rises when the price is high too.

7. Habitual Goods:

                                  Some people gets the habit of some goods so the rise in the price does not affect the demand of such commodity.

Q6 what is variation in demand and change in demand?

Ans: 

Variation in Demand:

Variation in demand means change in the demand due to change in the price of the commodity. There are two types of variation in demand

1. Extension of Demand

2.  Contraction of demand

1. Extension of demand:

                                             Extension of demand means a rise in demand due to fall in price only other factors remaining constant. Extension of demand leads to a downward movement of the demand curve but alone the same curve.

2. Contraction of demand:

                                                    Contraction of demand means a fall in demand due to rise in the price only other factors remaining constant. Contraction of demand leads to an upward movement of the demand curve but alone the same demand curve

(Diagram In the book)

Change In demand:

                                   Change in demand means a change in the demand due to other factors than price. There are many factors that change demand like income, population etc. There are two types of change in demand:

1. Increase in demand

2. Decrease in demand

1. Increase in demand:

                                          It means increase in demand due to other factors than price like rise in income, increase in the population etc. . Increase in demand leads a shift in the right from the original demand curve.

2. Decrease in demand:

                                             It means decrease in demand due to other factor than price like fall in income, decrease in demand etc. It lead to a shift of demand curve to left from original demand curve.

(Diagram in book and its explanation)  

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