Demand

CH- DEMAND

Q1. Define the following:

1. Market: The market for good in a wider sense means in which buyers and sellers of
that good are in contact with each other for sale and purchase of that good.
2. Price: It refers to the amount of money that has to be paid for the commodity or
service.
3. Demand: Demand for a good is the quantity of that good which the buyer(s) is /are
willing and able to buy at a given price, during a given period of time.
4. Normal goods: A good whose demand increases with increase in income of the
consumer or decreases with decrease in income of the consumer.
5. Inferior goods: A good whose demand falls with rise in income of the consumer and
increases with decrease in income of the consumer.
6. Substitute goods: Two goods are substitute if they can be used in place of each other
to satisfy a given want. These are also called competitive goods as they compete with
each other.
7. Complementary goods: Two goods are complementary to each other when they are
used jointly or we need one for the usage of other. For e.g.: tea and milk or pen and
ink.
8. Market Demand: It is defined as the quantity of a good that all the consumers taken
together in the market are willing to buy at a given price during a given period of
time.
9. Individual demand schedule: It is a table showing different quantities of a good a
consumer is willing to buy at different prices assuming there is no change in other
factors influencing demand.
10. Individual demand curve: It is locus of points where each point shows the quantity of
a good which a consumer is willing to buy at a price during a given period of time,
assuming no change in all other factors influencing demand.
11. Law of demand: It states, keeping other factors constant, there is inverse relation
between change in price of a good and the consequent change in demand for that
good.
Q2. Explain the factors that affect demand of a commodity.
Ans. Factors affecting demand of a commodity are:
1. Price of the good: When price of the good increases, the demand of that good falls
on the other hand, with decrease in the price of the good, its quantity demanded
increases.
2. Income of the consumer: As the income of the consumer increases, he demands
more of normal goods and less of inferior goods on the other hand, with decrease
in income of the consumer, demand for normal goods decreases and the demand
for inferior goods may increase.
3. Price of related goods: Related goods could be substitute goods or complementary
goods. If price of substitute good increases, then demand for the commodity in
question also increases and vice versa. For e.g.: If price of Pepsi increases, then
demand for Coca-Cola will increase. If price of complementary good increases,
then demand for the commodity in question decreases and vice versa. For e.g.: If
price of petrol increases, then demand for cars will decrease.
4. Taste and preferences: If tastes and preferences are in favor of the good then its
demand increases on the other hand, if preferences are unfavorable or not in favor
of the good then demand decreases.
Q3. Explain the factors affecting market demand of a good.
Ans. 1st four points are same
5. Population: more is the no. of consumers; more will be the demand for a good.
The composition of the population affects the demand depending upon the no. of
children, young and old people or the no. of rich and poor people in the country.
6. Distribution of income: if the distribution of income is in the favor of rich people,
then the demand for luxury and comfort good will be more and if it is in favor of
poor people then demand for necessities will be more. We can also say that if
income distribution is equal then the demand will be more as compared to a
situation where there is unequal distribution of income.
Q4. State the causes for increase in demand.
Ans. The causes are:
1. When income of the consumer increases in case of normal goods.
2. Demand decreases in case of inferior goods.
3. Price of substitute good increases.
4. Price of complementary goods decreases.
5. Taste and preferences of the consumers are in the favor of the commodity.
6. Increase in no. of consumer.
Q5. State the causes for decrease in demand.
Ans. The causes are:
1. When income of the consumer decreases in case of normal goods.
2. When income of the consumer increases in case of inferior goods.
3. Price of substitute goods increases.
4. Price of complementary goods increases.
5. Taste and preferences of consumers are unfavorable.
6. No. of consumer decreases.
7. It is expected that price of the commodity will fall in future.
Q6. Difference between movement along the demand curve and shift of the
demand curve.
OR
Difference between change in quantity demanded and change in demand.
Change in quantity demanded Change in demand
1. Other things remaining same, when 1. Price remaining the same when demand
quantity demanded of a commodity increases or decreases due to change in
increases or decreases due to change in factors other than price, income, taste,
price, it is known as change in quantity etc.
demanded. 2. It is known as shift of the demand curve.
2. It is known as movement along the demand 3. Rightward shift of the demand curve is
curve. known as increase in demand and
3. Upward movement along the curve shows leftward shift is decrease in demand.
decrease in quantity demanded i.e.
(contraction) downward movement along
the curve shows increase in quantity
demand i.e., extension or expansion.
Q7. Differentiate between contraction of demand and decrease in demand.

Contraction in demand Decrease in demand
1. Keeping other factors constant, with 1. At a given price lesser amount is demanded
increase in price, quantity demanded falls, due to change in factors like decrease in
it is known as contraction of demand. income, fall in price of substitute goods, etc.
2. It is upward movement along the demand 2. It is leftward shift of the demand curve.
curve.
3. Schedule:
3. Schedule:
Price Qty. demanded
10 20 Price Qty. demanded
12 15
10 20
10 15
Q8. Differentiate between expansion and increase in demand.
Extension /Expansion Increase in demand
1. Keeping other factors things, with 1. At a given price more amount is demanded
decrease in price, quantity demanded due to change in factors like increase in
rises, it is known as extension of demand. income, increase in price of substitute
2. It is downward movement along the goods, etc.
curve. 2. It is rightward shift of the demand curve.
3. Schedule: 3. Schedule:
Price Qty. dd Price Qty. demanded
10 20 10 20
8 25 10 25
Q9. How does change in income affect demand of a good?
Ans. Demand for a commodity also depends upon the income of the consumer. When
income of the consumer increases, purchasing power of the consumer also increases, so
demand for normal goods increases but demand for inferior goods decreases.
When income of the consumer decreases his purchasing, power reduces so he shifts to
inferior goods thereby the demand for inferior goods increases and demand for normal
goods decreases.
With increase in demand curve shifts rightward and with decrease in demand, curve shifts
leftward.
Q10. Can same good be normal for one and inferior for other?
Ans. Same good can be inferior for one person and normal for other. Whether a good is
normal or inferior is determined by the income level of the consumer.
A good which is normal good for a consumer with lower income, may become an inferior
good for a consumer with higher income. For e.g.: coarse cloth may be normal good for
low-income consumer but for a high-income consumer it may be an inferior good as he
can afford a better-quality cloth.
Thus, when a consumer reaches to a higher income level, he may consider coarse cloth as
being below his income status, as now he has ability to buy more expensive cloth, thus
considering it to be inferior good.
Q11. How does change in price of related goods affect demand of a commodity?
Ans. Related goods are of two types: substitute and complementary.
Substitute goods are those goods which can be used in place of one another. For e.g.: tea
and coffee.
When price of substitute good increases, demand for the commodity in question increases
as it has become relatively cheaper. So, demand curve for the commodity in question will
shift rightward. For e.g.: if price of coffee increases, demand for tea will increase.
When price of substitute good decreases, demand for the commodity in question
decreases as now substitute good is a better bargain for the consumer. So, demand curve
for the commodity in question will shift leftward. For e.g.: if price of coffee decreases,
then people will prefer more of coffee thereby reducing the demand for the commodity in
question i.e., tea.
Complementary goods are those goods which are used or consumed together to satisfy a
given want. For e.g.: car and petrol.
When price of complementary good increases, then usage of the commodity becomes
expensive. So, demand for commodity in question decreases, this results into leftward
shift of the demand curve of the commodity in question. For e.g.: if price of petrol
increases, then demand for cars will reduce.
When price of complementary goods decreases, usage of the commodity becomes
cheaper. So, demand for the commodity in question increases thereby shift the demand
curve rightward. For e.g.: when price of petrol decreases, demand for car increases.

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CH- DEMAND

Q1. Define the following:

Q7. Differentiate between contraction of demand and decrease in demand.

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