Demand refers to the quantity of a commodity the customer is willing and capable to purchase, at any given time and at each possible price. The above definition highlights essential components of demand: (i) Quantity of the commodity (ii) Willingness to buy (iii) Price of the commodity (iv) Period of time. Demand for a commodity can be expressed with respect to the individual (Individual Demand) or the entire market (Market Demand).
The quantity of a good or service that a consumer is willing and capable to purchase at each possible price during a given time period is referred to as an Individual Demand. However, the quantity of goods or services that all consumers are willing and capable to purchase at every possible price within a given time period is referred to as Market Demand.
Demand Function
The relationship between the quantity demanded of a particular commodity and the factors influencing it is expressed by the Demand Function. It can be with respect to an individual customer (Individual Demand Function) or all consumers in the market (Market Demand Function).
1. Individual Demand Function
The functional relationship between the individual quantity demanded of a particular commodity and the factors influencing it is defined as the Individual Demand Function.
It is expressed as:
Dx = f (Px, Pr, Y, T, F)
Where,
Dx= Demand for Commodity x,
Px= Price of the given Commodity x,
Pr = Prices of Related Goods,
Y = Income of the Consumer,
T = Tastes and Preferences, and
F = Expectation of Change in Price in the future.
2. Market Demand Function
The functional relationship between the market demand of a particular commodity and the factors influencing it is defined as the Market Demand Function. As earlier stated, market demand is influenced by all of the factors that influence individual demand. In addition to those factors, it is also influenced by population size and composition, season and weather, and income distribution.
It is expressed as:
Dx = f (Px, Pr, Y, T, F, Po, S, D)
Where,
Dx= Demand for Commodity x,
Px= Price of the given Commodity x,
Pr = Prices of Related Goods,
Y = Income of the Consumer,
T = Tastes and Preferences, and
F = Expectation of Change in Price in the future.
Po= Size and Composition of the population,
S = Season and Weather, and
D = Distribution of Income.
Demand Schedule
A demand schedule is a tabular statement that shows different quantities of a commodity that are demanded at different prices, over the course of a particular time period. It shows the association between the quantity demanded and the price of the commodity. A demand schedule can be created for both individual buyers and the entire market.
Therefore there are two types of demand schedules:
- Individual Demand Schedule
- Market Demand Schedule
1. Individual Demand Schedule
The tabular statement that shows different quantities of a commodity that a consumer is willing and capable to purchase at different levels of prices during a given time period is referred to as the Individual Demand Schedule.
Example:
Individual Demand Schedule
| Price (in ₹) | Quantity Demanded of commodity x (in units) |
|---|---|
| 10 | 20 |
| 9 | 21 |
| 8 | 22 |
| 7 | 23 |
| 6 | 24 |
| 5 | 25 |
As shown in the above schedule, with the decrease in the price of commodity x, the quantity demanded increases. The consumer is willing to buy 20 units at ₹10, and when the price drops to ₹9, demand increases to 21 units. Thus with the decrease in the price to ₹8, ₹7, ₹6, and ₹5, the demand increases to 22, 23, 24, and 25 units, respectively.
2. Market Demand Schedule
The tabular statement that shows different quantities of a commodity that all the consumers are willing and capable to purchase at different levels of prices during a given time period is referred to as the Market Demand Schedule. It is the aggregate of all individual demand schedules at all prices. The formula for the market demand schedule is:
Dm = DA+DB+…….
Where,
Dm is the market demand, and
DA+DB …… are the individual demands of Household A, Household B, and so on.
Example:
Assume that A and B are two consumers in the market of commodity x. The below table illustrates how the market demand schedule is created by horizontally adding the individual demand.
Market Demand Schedule
| Price (in ₹) | Individual Demand (in units) | Market Demand (in units)(DA+DB) | |
|---|---|---|---|
| Household A (DA) | Household B (DB) | ||
| 10 | 20 | 22 | 20 + 22 = 42 |
| 9 | 21 | 23 | 21 + 23 = 44 |
| 8 | 22 | 24 | 22 + 24 = 46 |
| 7 | 23 | 25 | 23 + 25 = 48 |
| 6 | 24 | 26 | 24 + 26 = 50 |
| 5 | 25 | 27 | 25 + 27 = 52 |
As shown in the above table, the market demand is calculated by adding together the demand of households A and B at various prices. Market demand is 42 units at ₹10 per unit. It increases to 44 units as the price drops to ₹9 per unit. As a result, the schedule of market demand also indicates the inverse relationship between quantity demanded and price.
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