Types of Demand7th February 2020
Consumer demand for a product may be viewed at two levels:
- Individual demand
- Market demand.
Refers to the demand for a commodity from an individual. That quality of a commodity a consumer would buy at a given price during a given period of time is his individual demand for that particular commodity.
In economics, ‘demand’ refers to the quantity of a good or service that consumers are willing and able to purchase at a given price. Different from what consumers desire to purchase, demand explains what they are actually able to purchase. Not all desires can be met for the reason that goods are guided by prices in the market. At higher prices, consumers would want to buy less of a good and the reverse is true for lower prices. This relation is the famous law of demand.
Another reason that desires are not the same as actual consumer decisions is that consumers are constrained by their budget. The money income of a consumer will limit his ability to purchase a commodity. Thus, demand expresses both willingness and ability to consume. Willingness is depicted by consumer preferences and ability is depicted by constraints such as money income and prices (budget constraint).
For a product on the other-hand refers to the total demand of all the individual buyers taken together. How much in quantity the consumers in general would buy at a given price during a given period of time constitutes the total market demand for the product.
Individual demand is the demand of a single consumer for a good or service at a given price, with other factors as money income, tastes, and preferences, prices of other goods constant. It can be graphically depicted by a downward sloping demand curve for a single consumer. The curve represents different price-quantity combinations available to a consumer to consume.
Market demand refers to the demand of all consumers of a good or service at a given price, with other factors as money income, tastes, and preferences, prices of other goods constant. It is called ‘market’ demand because it depicts the market situation for a good or service. It can be graphically obtained by aggregating the individuals’ consumer demand for a commodity. In simple words, the horizontal summation of all individual demand curves for a good or service gives you the market demand curve.
Market demand is the sum of individual demands. It is derived by aggregating all individual buyers’ demands in the market. This demand is more important from the seller’s point of view. Sales depend on the market demand. Business policy and planning are based on the market demand. Prices are determined on the basis of market and not of just an individual demand for the product.
Kinds of Demand
There are three kinds of demand:
- Price demand
- Income demand
- Cross demand
1. Price Demand
Price demand is that demand which refers to the various quantities of a commodity or service that a consumer would purchase at a given time in a market at various hypothetical prices. In this it is always assumed that other things such as consumer’s income, his tastes and prices of related goods remain unchanged.
This type of demand has been classified under three heads:
(a) Individual Demand
Individual demand is the demand of an individual consumer.
(b) Industry Demand
It is the aggregate demand of all the consumers combined for the commodity.
(c) Firm’s Demand or Individual Seller’s Demand:
This is the total demand for the product of an individual firm at various prices.
- Income Demand
This demand refers to the various quantities of goods which will be purchased by the consumer at various levels of income. In this, we start with this assumption that the price of the commodity as well as the price of related goods and the tastes and desire of the consumers do not change. The demand brings out the relationship between income and quantities demanded. This is helpful in preparing demand schedule.
- Cross Demand
In this demand the quantities of goods which will be purchased with reference to changes in the price not of this goods but of other related goods. These goods are either substitutes or complementary goods. For example—A change in the price of tea will affect demands for coffee. Similarly, if the price of horses will become cheap demand for carriages may increase.