Economics: Types of demand

Types of demand

1. PRICE DEMAND

Other things remaining same, the change in demand quantity of goods and services due to the change in the price of goods and services is called price demand. There is a negative relation between price and quantity demand. If the price of the goods and services increases, demand quantity decreases and if the price of goods and services decreases, demand quantity will increase.

Price demand can be expressed functionally as:

Q_d = f (P)

Price demand can be clarified with the help of figure as well.

In the above figure, Demand Quantity (Q) is measured on X-axis and Price of the commodity (P) on the Y-axis. We can clearly see that when the price of goods is OP_1,the quantity of demand is OQ₂ andwhen price increases to OP_2,the demand decreases to OQ_1. So, this figures clearly shows that when the price of goods increases, demand of the goods decreases and vice versa.Joining the equilibrium points we get the demand curve DD.

2. INCOME DEMAND

Other things remaining same, if the demand quantity of goods and services gets changed due to the change in consumer's income, it is called income demand. If income source of the consumer increases, their demand also increases and if income source decreases, demand of a commodity also decreases. Therefore, there is a positive relation between income and demand. Income demand can be clarified under the following two types of goods i.e. normal and inferior goods.

• Demand for Normal / Superior Goods:

When the income of a consumer increases, his/her demand quantity for a normal goods also increases and vice versa. There is a direct relationship between income of a consumer and demand for normal goods. Higher the income, higher the demand for goods and services and lower the income, lower the demand quantity. It can be explained with the figure.

In the above figure, Quantity Demand (Q) is measured along X-axis and Income Level (P) on the Y-axis. Y₁ and Y₂ denote income and Q₁ and Q₂ denotes demand. When the consumer’s income increases from OY₁ to OY₂, the demand also increases to OQ₁ to OQ₂ respectively. Hence, the upward sloping demand curve DD shows the relation between the income of a consumer and demand for the commodity.

• Demand for Inferior Goods

When the income of an consumer increases, his demand for the inferior goods decreases and vice versa. There is an inverse relation between income of a consumer and demand for inferior goods. Therefore, consumer consumes higher quality of goods more instead of less quality if there is high income and if there is low income then the consumer cannot buy high quality of goods. It can be illustrated with the diagram:

 

In the above figure, the X-axis represents the demand quantity and the Y-axis represents income level. When the income increases to OP2, the quantity demanded decreases to OQ1. Similarly, when income decreases to OP1, the quantity demanded increases to OQ2. Therefore, it shows the inverse relation between income and demand.

3. Cross Demand

Other things remaining same, there arise a change in goods due to the change in the price of one of the two goods is called cross demand. Likely, the change in the price of coffee brings change in demand quantity of tea. Cross demand can be divided into two parts i.e. substitutes goods and complementary goods.

• Substitute Goods

Substitute goods are those goods which we can use by replacing such as tea and coffee, coke and Pepsi, etc. We can get an equal amount of satisfaction on such goods. For example, if the price of Pepsi rises, we can substitute it with coke. Therefore, we can see a positive relation between quantity demands of one commodity with the price of another substitute commodity. The following figure clarifies more about the cross demand of substitute goods.

 

In the above figure, X-axis measures the quantity demand for Pepsi and Y-axis measures price of Coke. When the price of the coke rises from OP₁ to OP₂, simultaneously, the demand for the Pepsi increases from OQ₁ to OQ₂. Similarly, when the price of Coke decreases, the demand for Pepsi also decreases simultaneously. This shows the positive relation between these two products.

• Complementary Goods

Complementary goods such as pen and ink, car and petrol, etc are related to each other. It means if we demand one commodity then another commodity is compulsory. There seems an opposite relation between the price of one commodity with the quantity demand of another commodity. Nature of cross-demand for complementary goods can be explained with the help of figure:

 

In the above figure, the X-axis shows the quantity demand of ink and Y-axis shows the price of a pen. When the price of the pen is OP₁, the quantity demand of ink is OQ₂. And when the price of the pen is OP₂, the quantity demand of ink is OQ₁. Hence, when the price of pen increases, the quantity demand of ink decreases and when the price of the pen decreases, the quantity demand for ink increases. This shows the inverse relation between theses two factors.

SOME OTHER TYPES OF DEMAND

• Direct Demand

The commodity which is directly consumed by a consumer is known as direct demand. Such like clothes, food, fruits, are some of the examples of direct demand.

• Indirect Demand

Indirect demand is also known as derived demand. The demand is derived from the direct demand. The demand for a helmet, windproof is derived as per the demand of motorbike.

• Joint Demand

Quantity demand for several goods by a consumer to fulfill their single purpose is known as joint demand. For example, to prepare a cup of coffee, we need some several demands like sugar, milk, coffee powder and water.

• Composite Demand

If a commodity or service can fulfill several needs, it is called composite demand. Demand for goods which can be used for several purposes. Examples like demand for a tomato can be used to make the pickle, curry and soup. (Jha, Bhusal and Bista)