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Meaning Of Demand And Factors Affecting Demand

Meaning Of Demand And Factors Affecting Demand

6 MARKS QUESTIONS
Q.1 DEFINE DEMAND. EXPLAIN ANY FOUR IMPORTANT FACTORS THAT AFFECT DEMAND FOR A COMMODITY.
ANSWER:
(A) DEFINITION OF DEMAND
  • Demand may be defined as the quantity of a commodity that a consumer is able and willing to buy, at each possible price, over a given period of time.
  • Essential elements of demand are Quantity, Ability & Willingness, Prices and period of time.
(B) FOLLOWING ARE THE IMPORTANT FACTORS THAT AFFECT DEMAND OF A COMMODITY:
(a) OWN PRICE OF THE GIVEN COMMODITY [Pi20 Car  Di20 Car] [Pi20 Car Di20 Car]…Inverse Relation

  • Own price is the most important determinant of demand.
  • When own price of a commodity falls, its demand rises and when own price rises, its demand falls.
  • Thus we can say that there is an indirect relation between price of a commodity and its quantity demanded.
(b) PRICE OF RELATED GOODS Substitute Goods [PMaruti Swift Di20 Car]…Direct Relation

Complementary Goods [PPetrolDi20 Car]…Inverse Relation

RELATED GOODS ARE OF TWO TYPES – SUBSTITUTE AND COMPLEMENTARY

(i) SUBSTITUTE GOODS

  • When the price of the substitute goods rises then demand for the given commodity also rises and vice-versa.
  • Like, if Price of Maruti Swift increases, demand for i20 will rise.

(ii) COMPLEMENTARY GOODS

  • (Car & Petrol) When price of the complementary goods rises then demand for the given commodity falls and vice versa.
  • Like, if price of petrol rises, demand for cars fall.
(c) INCOME OF THE CONSUMER [IncomeHouseholdDNormal Goods]…Direct Relation

[IncomeHouseholdDInferior Goods]…Inverse Relation

  • To check the effect of change in income of the households over their demand, goods are divided into two categories:

(i) Normal Goods (Positive relation)

These are the goods whose demand rises with the rise in income. E.g. Basmati Rise

(ii) Inferior Goods (Negative relation)

These are the goods whose demand falls with the rise in income and vice versa. e.g. Low quality rice.

(iii) Necessities:

A third category is also there, necessities, demand for these generally do not change with change in income e.g. life-saving drugs.

(d) TASTE AND PREFERENCES OF THE CONSUMER
  • Demand for a commodity is also affected by taste and preferences.
  • It rises if there is a favorable change in the taste and preferences of the consumer and vice versa.
(e) MISCELLANEOUS
  • Future expectation about price and income also affect demand for a commodity in present.
  • Suppose, if we expect rise in price in near future, then we’ll increase demand in present even at the same price.

Lets Practice

1. _____________goods have positive income effect.
  1. Normal
  2. Inferior
  3. Complementary
  4. None of the above

View answer

Answer: Normal

2. Demand for which of the following goods does not change with change in Income of the consumer?
  1. Normal goods
  2. Necessity goods
  3. Inferior goods
  4. None of the above

View answer

Answer: Necessity goods

3.If with the rise in price of good Y, demand for good X rises, the two goods are:
  1. Substitutes
  2. Compliments
  3. Not related
  4. Jointly demanded

View answer

Answer: Substitutes