Concept of Demand

Concept of Demand

The fundamental question which economic theory explains is:  why it is that goods have low prices and why some goods are expensive while others are cheaper. The broad answer is that goods have prices because, on the one hand, they are useful and, on the other hand, they are scarce in relation to the amount which people will like to have. People will not be prepared to pay a price for the goods unless they are useful to them. 

Similarly, goods may be very useful, but if they are freely available in an unlimited amount, they cannot command a price. For example, air is very useful to us, but it is not scarce and hence it cannot command a price. Goods like air, which are gifts of nature, are known as ‘free goods’ and they do not have a price. By contrast, economic goods are scarce and command a price. Thus, economic goods have a price because they are useful as well as scarce in availability. It is only because economic goods are useful that they are demanded by buyers, and only because they are scarce that sellers are prepared to sell them at a price.

Meaning of Demand

Demand of any goods/services refers to the amount of that goods/services that will be bought at a particular price during a particular period of time.

The following remarks need to be noted in this definition of demand:

  1. Demand for goods/services in economics is not the same thing as desire for it. It refers to both the desire to bought and the ability to pay for commodity.
  2. Demand in economics is always at a price. It makes no sense if it is not related to a price.
  3. Demand is always expressed with reference to a particular time period.

Types of Demand

The demand for various goods/services can be classified on the basis of the number of consumers of a product, nature of the goods, interdependence of demand, nature of the use of the product, etc. We have discussed here four major types of demand, i.e. individual and market demand, joint demand, derived demand and composite demand.

1. Individual Demand and Market Demand

Individual demand refers to the demand for a commodity by single consumer. For example, the quantity of milk purchased per day by your mother is individual demand for milk.

Market Demand is termed as the total quantity of goods/services that households willing to buy at a given price during a given period of time.

For example, total quantity of milk which all the buyers are willing to buy at a given price per day (or over any period of time-week or month) is market demand for milk.

2. Ex-ante and Ex-post Demand

Ex-ante demand is the amount of goods/services that consumers wanting to or willing to purchase during a time period. It may be also called as planned or desired amount of demand.

Ex-post demand, is the quantity of goods that the consumers or household actually bought during any specific period. It may be also called as an amount of goods/services actually purchased.

3. Joint Demand

It refers to the demand for two or more goods/services, which is either consumed jointly or demanded together. For instance, cars and petrol, butter and bread, milk and sugar are the commodities which are used together. In case of joint demand, an increase in the price of one good or service leads to a fall in the demand for the other and vice-versa.

4. Derived Demand

The demand of a commodity that originates due to demand of some other commodity is known as derived demand.

For instance, demand for steel, bricks, cement, stones, wood, etc. is a derived demand, these are derived from the demand for house and other buildings. The demand for these goods arises because of the demand for houses and other buildings.

5. Composite Demand

This refers to the demand for goods or services that have multiple uses. For example, the demand for plastic arises from various uses of plastic, such as use of plastic in making various product bodies, toys, bottles, and so on

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