Demand – Meaning, Determinants & Demand Function

Demand is the starting point of all business decisions. No demand = no business.

1. Meaning of Demand

In ordinary language, desire and demand are used as same. In economics they are different.

Demand means quantity of a commodity that a consumer is willing and able to buy at a given price, during a given period of time.

So, demand includes:

• Desire for the good
• Ability to pay (purchasing power)
• Willingness to pay at a particular price
• A time period (per day / per week / per month)

2. Individual vs Market Demand

• Individual Demand: Quantity of a good demanded by one consumer at different prices.
• Market Demand: Total quantity demanded by all consumers in the market at different prices.

Market demand = Sum of individual demands.

3. Determinants (Factors Affecting Demand)

The main determinants of demand for a commodity are:

1. Price of the Commodity (P)

   • Generally, price ↑ → quantity demanded ↓ (inverse relation).

2. Income of the Consumer (Y)

   • For normal goods: income ↑ → demand ↑.
   • For inferior goods: income ↑ → demand ↓.

3. Prices of Related Goods

   • Substitutes (tea & coffee): price of tea ↑ → demand for coffee ↑.
   • Complements (car & petrol): price of petrol ↑ → demand for cars ↓.

4. Tastes, Preferences & Fashion

   • Favourable change → demand ↑.
   • Unfavourable change → demand ↓.

5. Expectations about Future Prices

   • If people expect price to rise in future, present demand ↑.
   • If expect price to fall, present demand ↓.

6. Size and Composition of Population

   • Larger population → higher demand for necessities.
   • Age composition also matters (youth vs elderly).

7. Government Policy & Taxation

   • Higher GST or excise duty → demand may fall.

8. Season & Weather

   • Demand for cool drinks ↑ in summer; demand for sweaters ↑ in winter.

4. Demand Schedule & Demand Curve (Intro)

A demand schedule is a table showing different quantities demanded at different prices.

Example: Demand for tea cups per day by one student.

From this schedule we can draw a demand curve showing inverse relationship between price and quantity demanded.

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5. Demand Function (Symbolic Form)

A demand function expresses demand as a function of its determinants.

In simple form:

Qd = f(P, Y, Pr, T, E, N, G)

Where:

• Qd = Quantity demanded
• P = Price of the commodity
• Y = Income of the consumer
• Pr = Prices of related goods
• T = Tastes and preferences
• E = Expectations about future prices/income
• N = Number of consumers (population)
• G = Government policy (tax, subsidy)

For elementary analysis, we often keep other factors constant and write:

Qd = f(P) ("other things being equal")

This is the base for Law of Demand.

6. Quick Revision Points

• Demand ≠ Desire. Demand includes desire + ability + willingness to pay.
• Determinants: price, income, prices of related goods, tastes, expectations, population, government policy, season.
• Individual demand vs market demand – one consumer vs all consumers.
• Demand schedule and curve show inverse relation between price and quantity demanded.
• Demand function expresses Qd as a function of various determinants.

7. Quiz Time 🎯

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