Demand for a commodity : It is number of units of that particular commodity goods or services that consumer is willing and able to purchase during a specified period of time at each conceivable price.

Qty demand for a commodity : It is the no. of units that consumer is willing to buy per unit of time at given price.

Demand and it's dependency : Demand for a commodity is function of following variables :

  • Price of commodity (Pn)
  • Price of relative product (Pr)
  • Consumer's income (Y)
  • Taste (T)
  • Other environmental factors. (S)

Dn = f(Pn,Pr,Y,T,S)

We now discuss each one of these factors effecting demand.

1. Price of commodity (Pn) : As the price of commodity increases it's demand reduces. This is because price goes beyond the range of some consumer. These two are inversely related.

2. Price of relative product : There could be two types of relative products

(a). Complementary goods : These are goods which is either input to the commodity or commodity is input to complementary goods. For function or for it's complete use both of these are required. For example ink and pen , Tooth paste and tooth brush, wheel and automobile. As the price of complementary good increases demand is reduced .This is because of the fact that the two are jointly required for functioning of that commodity . An increase in total price will reduce the demand and decrease in total price will increase the demand. These two are inversely related.

(b). Competitive Goods : Competitive goods are those goods which can completely replace the commodity as it has same functionality and use as the commodity. An decrease in competitive goods price will decrease the demand as now consumer can have same type of product at lower price. A shift in customer base will reduce the demand. These two are directly related to each other. Example : Coco Cola and pepsi

3. Consumer's income (Y) : Consumer's income is measure of purchase power. More is the income of consumer he will invest more. These are three types of products available in market for consumer.

(a). Necessary Goods : These are the essential commodities required for living. Even if the income of consumer increases he is less likely to invest in these type of products after their requirement is fulfilled for example food grains and salt. For such type of goods demand increases up to certain level according to consumer's requirement and then it ceases.

(b). Goods for luxuries and comfort : As the income of consumer increases it starts investing more into goods which provide comfort. Demand for such products increases with increase in consumer's income . Example of such products are air conditioner , television etc.

(c). Inferior quality goods : Inferior quality of goods are goods which consumer buy to fulfill their requirement and to save money. Consumer compromise with quality to buy required no. of quantity. As the income of consumer increases consumer starts buying good quality product. With increase in consumer's income demand for such goods reduces.

4. Taste of consumer : Taste of consumer depends on number of factors like age , occupation , community size , family composition etc.

5. Other factors : other factors include size of population , Composition of population more children or adults, Distribution of income , Festival seasons like Diwali, Christmas , New year etc.

Law of demand : Law of demand expresses functional relationship between price of commodity and it's quantity demand .Price and demand are inversely related. A fall in price either induces new consumers to purchase that commodity or tempts the previous consumers to buy more of that commodity. An increase in price may make it out of reach for many consumers and this reduces demand.

There are exception in law of demand at many situations law of demand fails to explain nature of demand

  1. Giffen goods : these are the goods for which demand increases as price of commodity increases.
  2. Inferior goods : As the price of inferior goods decrease demand also decreases. This is due to the fact that consumer saves more money and it adds to it's income.
  3. Conspicuous necessities : Goods which through constant use become necessity , and have attached prestige value to it. For example cooking gas and refrigerator. This type of goods can be termed as U-sector goods (goods used by upper strata of the society).
  4. Conspicuous consumption : A few things like diamond , gold jewellery are beyond the reach of common man because of their high prices. Wealthy people or rich section of society buy such products when prices of such products are increasing.
  5. Future change in price : In anticipation of prices to change in future consumer purchases large quantity of that commodity and make a stock.
  6. Emergencies : In case of state emergencies like war , flood and famine house hold behave in abnormal manner and buy more at higher prices so as to make sure that there is no scarcity.
  7. Change in fashion : As fashion changes , irrespective of prices consumer is not willing to buy a out of date fashion. Or if the commodity is in fashion consumer is willing to buy at higher prices to keep up with fashion.
  8. Ignorance : Ignorance of customer is another factor , which induces customer to buy at higher prices. this is especially which customer is haunted by the phobia of higher - priced commodity is better in quality than at lower - price commodity.

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