Question

Write short notes:

1. Giffen's paradox

2. Types of demand

3. Concept of demand

Answer 1

1. We know that, according to the Law of Demand, when the price of a commodity falls the demand for it rises. However, giffen goods are an exception to this Law. In case of giffen goods, the demand shares a positive relationship with price. As the price of giffen goods fall the demand for such goods falls. This is because as the price falls, the real income of the consumer rises and thereby, the consumer shifts to better superior quality goods. Such goods are highly inferior goods. It is named after the 19^th century British economist, Sir Robert Giffen, who found that when the price of bread fell, the demand for it also fell.

2. The following are the various types of demand.

i. Direct demand - Demand for goods that are meant for direct consumption is known as direct demand. For instance, goods like clothes and food have direct demand, as they are meant for final consumption.
ii. Indirect demand - When goods are in demand so that they can be used in the production of some other commodity, it is called indirect or derived demand. For instance, factors of production have indirect demand, as they are used in the production of goods meant for final consumption.
iii. Joint demand - Two or more goods are said to have a joint demand only when these goods are demanded together to satisfy a single want. For instance, pen and ink are demanded together; therefore, they have a joint demand.
iv. Composite demand - It refers to the demand for commodities that are used to satisfy various wants at the same time. For instance, water is used for satisfying several wants.
v. Competitive demand - It refers to the demand for goods that face high competition from their close substitutes, for instance, Coke and Pepsi.

3. Demand for a commodity refers to the quantity of a commodity that a consumer is willing and is able to purchase at a particular price at any particular point of time. In the concept of demand besides ability to purchase, the ability to purchase is also important. It is only when the consumer has sufficient purchasing power the willingness to purchase the commodity can be regarded as demand. Without the purchasing power, the willingness to purchase is only a desire. For example, an individual may be willing to purchase a house. But it can be termed as demand only when the consumer has sufficient purchasing power for the same.