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law of demand & types of demand- economics


Law of demand introduced by Professor Alfred Marshall in his book “Principles of Economics” in 1890. A person willingness to purchase and capacity to pay for the commodity is called demand. In other words, the demand for anything at a given price is the amount of it which will be bought per unit of time at that price. Demand is a effective desire of an individual but all desires are not demand.

If a person has income but no willingness to purchase a commodity then there is no demand. On the other hand, if a person has willingness to purchase a commodity but he has income or no income then there is demand. That’s why demand is an effective desire. 

The demand of commodities is divided into 2 categories-

  • Individual demand- when a single consumer or a household demand for commodities at a particular time at a given price.

  • Market demand- the sum of total demand by all the household or consumers at a particular time at a given price.

The relation between Price & Demand is inversely proportion. As the price of a commodity increases, the demand of the same commodity decreases or vice versa. When price of a commodity increases, consumers are forced to purchase less quantity of a commodity at a certain price in the contrary if the price of a commodity decreases, consumers are able to purchase more quantity at the same amount of money. 


There are 5 types of demand which are abbreviated as “DDJCC”. The type of demand are as follow:


When a commodity is directly purchase from the market & serve to the consumer for direct consumption. For example demand for clothes, sugar, T.V., etc. 


When required goods that are not directly available in the market for purchase by the consumer & need to create demand. For example demand for labour, land, capital & entrepreneur are not readily available to purchase.


When demand for one commodity increase due to increase in demand for another commodity. For example cars & fuel, bulb & electricity, etc. if the demand for cars increases as a result demand for fuel also increases.


When demand for a commodity increases or decrease which is used for several purposes. For example demand for electricity, matchbox, fuel, etc. 


When the price of commodity increases and  demand for substitute goods increases in order to satisfy the needs of consumer. For example when price of Dolo tablet increases the demand of Paracetamol increases as a substitute good. 

The demand of a commodity is determined by certain factors. These factors are as follows:

  1. Price: 

The demand of a commodity changes with change in price of that commodity. If the price of a commodity increases, the demand of that commodity decreases. The relation between the price & the demand of a commodity is inversely proportional to each other. 

  1. Income:

The income of a consumer determine the purchasing power of a customer. Income of a customer is directly proportional to the demand of a commodity. If a person has more money, person demand for more quantity of commodities. 

  1. Price of Substitute goods: 

When the price of a commodity increases, the demand for substitute goods increases. Substitute goods are less costly than the original goods. Consumer prefer to buy cheaper goods over expensive goods. 

  1. Price of Complementary goods:

When the price of one commodity effects the demand of other commodity. The price of fuel increases the demand for cars will decreases. On the other hand if the price of cars decreases, demand for fuel will increases.

  1. Nature of Products:

Those commodities which are necessary for consumers will always keep in high demand irrespective of its price. Some of the necessary goods are medicines, food, clothes, etc. some goods are necessary for survival and some are addictive goods to which consumers are addicted. Some of the addictive goods are cigarette, drugs, weed, etc. 

  1. Size of population:

The demand of commodities depend upon the population of a particular area. Larger the population, greater will be the demand for commodities. Population of a certain area is directly proportional to demand. 

  1. Prediction of future price:

There is a concept of prediction of price in the economy. When the price is low, purchase more. On the contrary when price is high, purchase less. In the prediction of future price consumers are predicting price of commodities that in future time its price will decrease, so we purchase when price fall down. On the contrary price of a commodity will increase, so we purchase it today.

Law of demand deal with the functional relationship between price & quantity of product demanded by a consumer. The law of demand based on certain assumptions that there is no change in population, prices of commodities are same, quality of commodities are same, there is no changes in taxes, no change in geographical condition, etc. 


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