Factors affecting demand

We discuss below some of the important determinants of demand for a commodity:

1)  Price of the commodity:
Normally there is an inverse relationship between the price of the commodity and the quantity demanded this means that lower the price of the commodity, larger is the quantity demanded and higher the price, lesser is the quantity demanded.
Price- rises ,   demand- falls
Price-falls   ,   demand- rises

2)Income of the consumer :
Income determines the purchasing of the consumer. Generally there is a direct relationship between the income of the consumer and his demand for a product.
Income- rises  ,    demand- rises.

However, this may not always be the case. Let see the relation between income and three different types of commodities consumed.

a) Normal goods: normal goods are those goods the demand for which increases with increase in income of the consumers and decreases with fall in income for example demand for clothes, refrigerator, television, cars etc.

 Effect of change in consumer’s income on normal goods

normal goods

The above figure shows the income of the consumer plotted on y-axis and the quantity purchased of a commodity is plotted on x-axis. The nature of relation between income and demand for normal goods is shown by OA curve. 

Types of Demand

The demand for various goods 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 product etc.

There are five major types of demand:

1) Individual Demand	Market demand
Quantity of a commodity that an Individual consumer is willing to purchase at a given price during a given period of time is known as individual Demand. It refers to the demand for a commodity by a single consumer or household, also known as household demand. For ex. quantity of vegetables purchased per day by your mother is an individual demand for vegetables.	Total quantity of a commodity that all the households are willing to buy at a given price during a given period of time. For ex. quantity of vegetables purchased per day by all the buyers is market demand for vegetables.
2) Ex ante Demand	Ex post Demand
Refers to the amount of goods that consumer want to or willing to buy during a particular time period. It is the planned or desired amount of demand.	Refers to the amount of goods that consumer actually purchase during a specific period.
For example. you want to buy a 4bhk house by the end of this year, that is your ex ante demand but due to non availability you end up buying a 3bhk house during this period, this is your actual purchase or ex post demand. Thus what you wish to buy is not the same what you actually purchase. Consumers may end up buying lesser or more quantity of goods that they had planned to buy.

Demand An Introduction

When we go to the market we see that every commodity has a price tag, some goods are cheaper and some are very expensive. Have you ever thought of why these commodities are sold for a price ???

The immediate answer that can come to your mind would be because it’s useful to us so we pay a price to acquire it. But if this is so, than why air, rain and sunlight do not have a price? 

They are also very useful to us. This is so because they are unlimited or free goods (goods like air which are gift of nature, are known as ‘free goods’ and they do not have a price).

So we can now say that since goods are useful and scarce, they have a price, these are called economic goods.But usefulness and scarcity are only the underlying forces.

Usefulness expresses itself in the form of demand by buyers, and scarcity expresses itself in the form of supply by the sellers. Therefore, prices of goods and services in a free enterprise economy are determined by the interaction of forces of demand and supply.

Demand and Supply are the two important tools of economic analysis.

Meaning of Demand

Demand for any commodity refers to the amount of that commodity that will be purchased, i.e., the amount which consumers are willing and able to purchase at a particular price during a particular period of time.

Branches of Economics

For a precise and detailed study of various aspects and all economic problems, economics is broadly divided into two branches.

1) Microeconomics

2) Macroeconomics

Microeconomics: “Micro” means small. Microeconomics is the study of the behavior of individual economic units. These units include individual households, producers, firms and industries.

Subject matter of Microeconomics

1. Theory of consumer behavior/demand: In this we study how individual consumer distributes his income among various goods and services as to maximize his utility.

2. Theory of Production: What quantities of different factors of production are used in producing a commodity.

3. Theory of product pricing: how prices of various products are determined.

4. Theory of Distribution: How the output produced is shared among various factors of production.i.e determination of wages, determination of interest, determination of rent, determination of profit.

5. Theory of cost: How producers will minimize his cost of production.

6. Welfare economics: In this we study whether resources are efficiently allocated so there is optimal utilization of resources, maximum welfare and output.

Interdependence of Microeconomics and Macroeconomics

We have seen that there is a distinction between micro and macroeconomics, but this does not imply that both are independent ways of analyzing the economic issues. Both are complementary to each other.
Analysis of economy cannot be conducted in two water tight compartment. Variables of each other are interdependent, therefore as we analyse micro economic variables,we have to take account of macroeconomic variables that may affect the micro economic variables and vice versa.

When we say that macroeconomic theory deals with big issues of economic life it does not mean that macroeconomic theory is more important, since the entire economy is made up of small units of microeconomics, so micro economic theory is equally important. 

Also the main objective of both are same i.e. maximization of material welfare of the people and the entire economy. So study of both is equally vital so as to have full knowledge of the subject matter of economics.
As said by Samuelson “There is really no opposition between micro and macro economics. Both are vital. You are less than half educated if you understand one while being ignorant of the other.” 

Macro & Micro Economics can be better understand by the below picture.

Microeconomics and Macroeconomics