Rajasthan Board RBSE Class 12 Economics Notes Chapter 3 Consumers Equilibrium
The demand for a commodity is the amount of it that a consumer will purchase from the market at various prices during a period of time.
Demand in economics implies both the desire to purchase and the ability to pay for a good.
Demand of a good is determined by many factors, such as the tastes and desires of a consumer for a good, income of the consumer, the prices of related goods, alternative or complementary goods.
The word ‘market’ is usually a place or area where goods and services are bought and sold, such as Sanjay Place, Raja ki Mandi, Bombay Stock Exchange, etc.
A market is a mechanism by which buyers and sellers negotiate to determine the value (price) and quantity of a good or service.
Individual demand can be defined as the quantity of a commodity that a person is ready to buy at a certain price over a specified period of time, say, per day, per week, per month, etc.
Market demand for a good is the total sum of the demands of individual consumers, who purchase the commodity in the market.
There are three factors which influence demand :
- Desire for any object.
- The ability to buy it, i.e., the ability to pay, (in money).
- The willingness to pay the price of good or commodity.
- There are five elements of demand:
- Desire for any commodity.
- Resources of purchasing goods.
- There should be a desire to buy a commodity.
- The item can be bought at a certain price.
- Within a given time.
Demand schedule is that schedule in which the other things remain constant, and it expresses the relation between the different quantities of items demanded at different prices.
“The table relating to price and quantity demanded is called the Demand schedule.”
Demand schedule is of two types :
- Individual demand schedule
- Market demand schedule.
Graphical presentation of the demand schedule is called Demand Curve. A demand curve is obtained by plotting a demand schedule. It represents the maximum quantities of a commodity per unit of time, that consumers will take at different prices.
A curve, which represents different quantities of the commodity demanded by a consumer at different prices, is called Individual Demand Curve.
A curve, which represents the total quantities of a commodity demanded by all the consumers in the market at various prices, is called Market Demand Curve.
Demand fuhction indicates the connection between demand for one commodity and its various determinants. It shows how the demand for a commodity is related to the value of the commodity or the income of the consumer or other determinants.
Individual demand function for a commodity depends on its price, consumer’s income, prices of related commodities, consumer’s tastes and preferences, and advertising expenditure made by the producers for the commodity.
Individual demand function can be expressed as under:
Dx = f (Px, Pr, Y, T, E)
Here, Dx = Demand for commodity
Px = Price of the commodity
Pr = Price of other (related) goods
Y = Consumer’s income
T = Tastes and preferences
E = Expectations
The demand function with price as a single independent variable, can be called Short Term Demand Function.
A demand function is said to be linear when the slope of the demand curve remains stable throughout its length.
A demand function is said to be non-linear or curvilinear when the slope of a deman curves changes all along its length.
A long-run or dynamic function, possesses all the relevant determinants of demand for a product in the demand function.
Substitute goods are those goods, which can be alternative for each other, such as tea and coffee, scooter and bike, green board and black board.
Complementary goods are those goods which are dependent on each other and jointly satisfy a particular desire such as pen and ink, bread and butter, TV and set-up box.
When demand curve changes its position, or changes its shape, the change is known as Shift in Demand Curve. This curve shift occurs when demand changes due to the factors other than price.
Law of Demand : According to the Ceteris Paribus, “Other things being equal, if the price of a commodity falls, the quantity demanded of it will rise, and if the price of the commodity rises, its quantity demanded will decline.”
There is an inverses relationship between quantity demanded of a commodity and its price, provided other factors influencing demand remain unchanged.
The downward slope of the demand curve indicates that the more goods is bought in response to the decline in price.
The downward slope of the demand curve shows the inverse relationship, and the factors which influence this relationship are the following:
- Law of diminishing marginal utility
- Income effect
- Substitution effect
- Size of consumer group.
Change in quantity demanded refers to increase or decrease in quantity purchased of a commodity in response to decrease or increase in its price, if other things remains stable.
When due to change in its price” alone, quantity demanded of a commodity changes, different points express it on the same demand curve. Due to this movement on different points, and it is called Movement Along a Demand Curve.
Shifting of the demand curve is the position in which the entire demand curve shifts either upward or downward. This change takes place when quantity demanded changes due to change in variables other than price of the similar commodity.
Extension of demand is a situation in which other things are the same, when the price decreases, but the quantity demanded of a commodity increases.
Contraction of demand is a situation in which when other things remain same, when the price increases, the quantity of a demanded commodity decreases.
Increase in demand is indicated by a tilt in demand curve to the right, it is called Forward Shift in Demand Curve.
Giffen goods are those goods whose demand increases when their price rises and decreases when the price falls. Its slope is always positive.
Prestigious goods are those goods that are demanded because of their exclusive price, such as diamond, platinum, etc.
If X and Y are substitute goods and price of X remains constant, the demand curve for X would tilt to the right if price of Y increases, and the demand curve for X would tilt to the left if price of Y decreases.
If X and Y are complementary goods and price of X remains constant, the demand curve for X would shift forward if price of Y reduces and the demand curve for X would shift backward if price of Y increases.
Important Definitions
- In Prof. Beham’s words, “The demand for a commodity indicates that quantity of the commodity, which would be bought at a certain price and at a certain time.”
- According to J.S. Mill, “Demand is that quantity of a commodity which an individual is prepared to buy at a given price.”
Demand Schedule
In Prof. Benham’s words, “The total condition of the demand of a commodity in a market, at a certain time, indicates the quantity of sale of the commodity at different prices. If such data is arranged in tabular form, it is called demand schedule”.
Important Glossary
- Demand : It refers to the quantity of a good or service that consumer is willing and able to purchase at various prices during a period.
- Consumer : A person who can decide whether to buy an item in the shop or not, and the one who can be influenced by marketing and advertising.
- Desire : A feeling of want or a strong wish of something.
- Goods : A commodity or an object of commercial purpose.
- Income : Earning by the sales, investment, etc.
- Complementary Goods : Those goods, which are dependent on each other and jointly satisfy a particular desire.
- Market : A place or area where goods and services are bought and sold.
- Individual Demand : It can be defined as the quantity of a commodity that a person is ready to buy at a certain price over a specified period, say, per day, per week, per month, etc.
- Market Demand : It is the total sum of the demands of individual consumers, who purchase the commodity in the market.
- Demand Schedule : It is that schedule in which the other things remain constant, and it expresses the relation between the different quantities of items demanded at different prices.
- Demand Curve : Graphical Presentation of the demand schedule.
- Individual Demand Curve : A curve, which represents different quantities of the commodity demanded by a consumer at different prices.
- Market Demand Curve : A curve, which represents the total quantities of a commodity, demanded by all the consumers in the market at various prices.
- Demand Function : It indicates the connection between demand for one commodity and its various determinants.
- Determinant : A factor, which decisively influences the nature or the outcome of something.
- Short Term Demand Function : The demand function with price as a single independent variable.
- Income Effect: It is the effect on the change in the quantity demanded when the actual income of buyer changes as a result of the change in the price of commodity alone.