In economics, demand is the quantity of a good or service that a consumer is willing and able to purchase at different price levels available during a given time period. Although the demand is a desire of a consumer to purchase a commodity, it is not the same as the desire. Desire is just a wish of a consumer to purchase a commodity even though he is unable to buy it. However, demand is a consumer’s desire to purchase a commodity, provided he is willing to spend and has sufficient purchasing power.
The demand for a commodity can be with respect to an individual or the entire market.
Individual Demand
The quantity of a commodity a consumer is willing and able to purchase at every possible price during a specific time period is known as Individual Demand.
Determinants of Individual Demand
There are various factors that affect (increase or decrease) the demand for a commodity. These factors are as follows:
1. Price of the given Commodity
The most vital factor that affects the demand for a commodity is its price. Usually, there is an inverse relationship between the price and demand of a commodity (also known as the Law of Demand), which means that when the price of a commodity rises, its demand declines, and vice-versa. For example, if the price of coffee increases, then its quantity demanded will decrease, as the satisfaction level derived by the consumers from its consumption will fall due to the rise in price.
2. Price of Related Goods
Related goods are the goods in which a change in the price of one good affects the change in the demand for another good. There are two types of related goods, namely., substitute goods and complementary goods.
Substitute Goods: The goods which can be used in the place of one another to satisfy a specific want are known as substitute goods. It means that an increase in the price of one good, increases the demand for its substitute, and vice-versa. For example, if the price of a commodity, let’s say, tea increases, then the demand for its substitute, let’s say, coffee will also increase, as it will now become comparatively cheaper than tea. As demand for substitute goods compete with each other in the market, they are also known as Competitive Goods.
Complementary Goods: The goods which are used by the consumers together to satisfy a specific want are known as complementary goods. It means that an increase in the price of one good decreases the demand for its complementary good, and vice-versa. For example, if the price of a commodity, let’s say, bread increases, then the demand for its complementary good, let’s say, butter will decrease, as it will be costlier for the consumers to buy and consume both of these goods. In other words, the price of a good is inversely related to the demand for its complementary good.
3. Income of the Consumer
The income of the consumer also affects the demand for a commodity. However, the way income of a consumer affects the demand depends upon the nature of the commodity. The goods can be normal goods and inferior goods.
Normal Goods: The goods for which demand will rise if the income of the consumer increases, and vice-versa is known as normal goods. For example, if the income of a consumer increases, then his demand for goods like luxury cars, smartphones, jewelry, etc., will also increase.
Inferior Goods: The goods for which demand will decrease if the income of the consumer increases, and vice-versa is known as inferior goods. It happens so because now the consumer has the ability to purchase commodities of good quality. For example, if the income of a consumer increases, then his demand for goods like canned food, used cars, etc., will decrease, as the consumer can now purchase good quality goods.
4. Tastes and Preferences
There is a direct effect of tastes and preferences of a consumer on the demand for a commodity. It means that a change in the tastes or preferences of the consumers’ increases or decreases the demand for a commodity. It includes habits, customs, fashion, etc. For example, if a particular clothing style is in fashion, then its demand among the consumers will also increase. However, if a clothing style gets out of fashion, then its demand among the consumers will decrease.
5. Expectation of Change in the Price in Future
If a consumer expects that the price of a commodity is going to increase in the near future, then he/she will try to buy it in more quantity in the present, increasing its demand. In other words, there is a direct relationship between the future expectations of changes in the price of a commodity in future and its demand in the present. For example, if people think that price of diesel will rise in the future, then they will try to fill up the tanks of their vehicles, increasing the demand for diesel.
Market Demand
The quantity of a commodity that all consumers are willing and able to purchase at every possible price during a specific time period is known as Market Demand.
Determinants of Market Demand
In addition to the factors affecting the individual demand for a commodity, there are other factors also that affect the market demand of the commodity. These factors are as follows:
1. Size and composition of population
The size of the population in a country affect the market demand for a commodity. An increase in the population of a country increases the market demand for goods, and vice-versa. The composition of the population involves the male ratio, female ratio, children ratio, etc., which affects the demand for a commodity. For example, if the population of a country includes more men, then the demand for commodities used by men, such as shaving cream, etc., will also rise.
2. Season and weather
The seasonal and weather conditions of a place also have an impact on the market demand for a commodity. For example, during the summer season, the demand for cotton clothes, ice cream, etc., increases, during the rainy season the demand for raincoats, umbrellas, etc., increases.
3. Distribution of income
The way income is distributed in a country also impacts the demand for a commodity. If the income is distributed equally in a country, then the market demand for a commodity will also increase. However, if the income is unevenly distributed among the rich and poor, then the market demand for a commodity will be low.
Difference between Individual Demand and Market Demand:
| Basis | Individual Demand | Market Demand |
|---|---|---|
| Meaning | The quantity of a commodity that a consumer is willing and able to purchase at every possible price during a specific time period is known as Individual Demand. | The quantity of a commodity that all consumers are willing and able to purchase at every possible price during a specific time period is known as Market Demand. |
| Law of Demand | Individual Demand may or may not follow the Law of Demand. It means that there is a possibility of a product’s demand to be higher at a higher price. | Market Demand always follows the Law of Demand. It means that the demand for a product always reduces when there is a rise in its price, and vice-versa. |
| Affect of factors | The individual demand for a product is not affected by every factor affecting its market demand. | The market demand for a product is affected by every factor affecting its individual demand. |
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