Demand-Individual Demand & Market Demand and factors that affect Demand, HSC/Class 12

In a Layman's language demand means desire. However, in economics demand has a different meaning. In economics, demand is desire backed by the ability and willingness to pay.

Hence, in economics desire becomes demand only when it is backed by ability as well as willingness to pay.

In other words, Demand = Desire + ability to pay for that desire + willingness to pay for that desire.

You may have a wish to have a private jet. But unless you have (a) capacity as well as (b) willingness to pay for it, it won’t be considered as demand. 

You may have a wish which you can afford to fulfill but you are unwilling to spend money for the fulfillment of wish. In this case also, desire won't be considered as demand.

People demand goods because they have utility. The demand is that quantity of a particular commodity which a consumer is ready to buy at a particular price and during a specified period of time. For example, if Mr X is willing to buy only 10 kgs of sugar when the price of sugar is Rs.40 per kg then demand of Mr..X for sugar can be considered as 10 kgs when the price of sugar is Rs.40 per kg (assuming he has the ability to pay for it). 

Thus demand is a relative concept. Demand is always stated with reference to price and time.

Individual Demand Schedule - This refers to various quantities of a particular commodity that an individual is willing and able to buy at different levels of prices during a specified period of time. For example, the below table shows various quantities of sugar, which Mr X is willing to buy at different levels of prices. In other words, it is an Individual demand schedule of Mr.X.

Price of the Sugar (in Rs.)          Demand in Kg

    500                                            1
    400                                            2
    300                                            3
    200                                            4
    100                                            5

Market Demand Schedule: This refers to the aggregate demand of all individuals in the market at different levels of prices during a specified period of time. For example, the table below shows the demand of three individuals in the market. It is called as market demand schedule (assuming that there are only three individuals in the economy i.e, A,B and C).

Sugar Price    A's demand    B's demand    C's demand        Markets's Demand
(in rupeee)          (in kg)           (in kg)              (in kg)                   (in kg)
25                            6                     7                         8                            21
26                            5                     6                         7                            18

27                            4                     5                         6                            15               
28                            3                     4                         5                            12
29                            2                     3                         4                              9
30                            1                     2                         3                              6

Factors that affect demand -

Price: It is the most important factor that affects demand. When price rises, demand falls and vice versa. 

Income: Demand also depends on Income of individuals in the society. More the income, more will be the demand. This is pretty obvious.

Population: An increase in population leads to higher demand. More the number of people in the economy, higher will be the demand.

Expectation of future prices: Expectation of future prices also affects the demand. If the consumers feel that the price of a particular commodity is likely to fall, then they may postpone their plan to purchase that commodity. This will lead to a decrease in demand of that particular commodity

Tastes habits and fashions- These also have an effect on demand for various products. The products which may be in fashion will be demanded more

Advertisement and promotion - Advertisement and promotion also play an important role in demand of a particular commodity. The goods which are highly promoted and advertised are likely to have more demand

Prices of substitute and complementary products: These factors also affect demand for a particular commodity. For example, Tea and Coffee can be considered as substitutes for each other and hence a change in the price of coffee will affect the demand for tea. Similarly, ink pen and ink are complementary. Change in price of anyone will affect the demand for another

Taxation policy- Demand for various goods depends upon the level of income of people in the economy. If the taxes are high, the consumers will have less income to spend on various commodities which can lead to lower demand for various products in the market.  

Distribution of income- The distribution of income in an economy also impacts the demand for various commodities in the economy. If there is an unequal distribution of income, a vast majority of the population will have a very low income which in turn would lead to lower demand.

Other factors- Factors like customs, traditions, change in climate, political and social factors also influence the demand for the various good in the economy. For example, in India, the demand for various goods and commodities is high during the Diwali festival.

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