In this note, we are discussing the Theory of Demand, the Law of Demand, and the Different Types of Demand with Example. Welcome to Poly Notes Hub, a one-stop solution for Diploma Engineering Notes.
Author Name: Arun Paul.
Theory of Demand
It is the amount of goods or services that consumers are willing and able to buy at different prices over a certain period. Understanding demand is critical for organizations since it directly affects their sales, revenue, and overall success. Businesses analyze this is to make informed pricing, production, inventory, and marketing decisions.
Key aspects of demand in business include:
- Consumer Behaviour
- Market Demand
- Price Sensitivity
- Supply and Demand Equilibrium
- Forecasting
Different Types of Demand with Example
In the context of economics and business, it can be categorized into several forms based on distinct criteria:
1. Individual Demand
This is the demand for a given commodity or service by a single consumer. It is determined by variables such as personal preferences, income, and price.
Example: Kushal’s desire for coffee from her favorite cafe.
2. Market Demand
It is the entire demand for an item or service among all consumers in a certain market or industry. It represents the sum of individual market needs.
Example: Total smartphone needs in the global market.
3. Derived Demand
When demand for one commodity or service is determined by the demand for another, this is referred to as derived demand.
Example: The requirement for steel is driven by construction projects such as buildings and bridges.
4. Composite Demand
It occurs when a good or service is required for several uses.
Example: Electricity may be required for lighting, heating, and running appliances.
5. Joint Demand
It is the simultaneous demand for two or more items that are utilized together or complement one another.
Example: The desire for printers and ink cartridges, which are usually purchased combined for printing reasons.
6. Competitive Demand
It happens when two or more commodities or services are interchangeable to meet a specific need or want. A rise in the price of one good may cause an increase in demand for its replacements.
Example: The desire for tea and coffee, where an increase in coffee prices may result in a greater demand for tea as a substitute.
7. Complementary Demand
It occurs when two commodities or services are used concurrently. An increase in demand for one commodity leads to an increase in demand for its complementary good.
Example: Cellphones and mobile data plans are in high demand, as people often purchase both to utilize their cell phone capabilities fully.
Law of Demand
It is a fundamental economic principle that outlines the inverse relationship between the price of an item or service and the amount required by consumers, assuming all other conditions are equal. Simply said, when the price of an item or service rises, the quantity requested by consumers falls, and when the price falls, the quantity demanded rises.
This law is founded on the concept of ceteris paribus, which states that all other factors influencing demand remain constant. It suggests that consumers are more likely to pay a lesser price for a commodity or service since it is more affordable in comparison to their income or other goods and services.