Theory of Demand And Supply

DEMAND 
Demand is defined as relationship between price and quantity demanded. 

Quantity demanded of a good or service that a consumer is willing and able to buy at a given price in a given time period.
 
There is a difference between demand and quantity demanded i.e. demand refers to the whole demand schedule that consumer draws in mind showing different quantities of a commodity that a consumer intends to buy at different given prices, whereas quantity demanded refers to the particular quantity out of the demand schedule which was intended by consumer at a specific given price.

Types of Demand: 
Demand can be classified as
  • Individual Demand: It refers to the demand of a single consumer.
  • Market Demand: It refers to demand of all the consumers.

Demand Curve: 
Demand Curve is the graphical representation of demand schedule. Like schedule it also has two aspects: Individual demand curve and Market demand curve.

INDIVIDUAL DEMAND FUNCTION:  

Dx = f(Px,Pr,T,Y,E)

Dx= Demand for good X

f = function of

Px = Price of own commodity is the most important determinant of demand for any good as price is inversely related to the quantity demanded of the commodity. As the price rises, demand for the commodity falls.

Pr= Price of related goods Demand for a commodity is effected by price of related goods. Related goods impact the quantity demanded of a commodity. Related goods are of two types. 

Substitute goods: Substitute goods are those goods that can be used in place of each other, e.g. tea & coffee. 

Complementary goods: Complementary goods are those goods which are used together to fulfill the want, e.g. Car & Petrol. Increase in the price of complementary good will lead to decrease in demand of a given commodity, e.g. rise in price of car leads to decrease in demand for petrol.

T= Taste & Preference: Taste and preference directly effects demand for a commodity, it includes, fashion, climate etc.

Y= Income of the consumer: Generally income is directly related to the demand for a commodity. Demand rises with rise in income in case of normal goods.

E= Expected Price in Future: If the price of the commodity has a tendency to rise in future its demand in present will increase.

N= Population size: Market demand is determined with size of population. An increase in size of population rises the demand for a commodity and vice-versa.

Yd= Income distribution: If income in the country is equal then the market demand will be more and vice-versa.

These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter in CS foundation Business Economics.

Start Exam