1. Meaning and kinds of demand
Demand is the quantity of a good that buyers are willing and able to purchase at a given price during a given period. A wish without the means to pay is only a desire.
- Individual demand: one buyer's quantities at different prices.
- Market demand: the total of all buyers' quantities at each price.
- Joint demand: goods wanted together (stove and LPG cylinder).
- Composite demand: one good with several uses (electricity for lighting, cooking and pumps).
- Derived demand: wanted for what it helps to produce (labour for construction).
| Kind of demand | Meaning | Imagined Indian example |
|---|---|---|
| Individual | Quantity one buyer wants at each price | One family's weekly milk purchase in Ludhiana |
| Market | Total of all buyers' quantities at each price | All milk bought in the town at ₹56 a litre |
| Joint | Two goods wanted together for one use | Gas stove and LPG cylinder |
| Composite | One good wanted for several uses | Sugarcane for sugar, jaggery and ethanol |
| Derived | A good or factor wanted for what it helps make | Masons wanted because flats are wanted |
Key terms
- Demand
Desire backed by ability and willingness to pay, at a price, over a period.
- Derived demand
Demand for a good or factor that arises from the demand for another product.
2. Determinants and the demand function
Dx = f(Px, Py, Y, T, E) — own price, prices of related goods, income, tastes and expectations (population matters for market demand).
- A dearer substitute raises demand; a dearer complement lowers it.
- Higher income raises demand for a normal good and lowers it for an inferior good.
- A shift of tastes towards the good, or an expected price rise, raises demand now.
The own price causes movements along the curve; every other determinant shifts it.
| Determinant (symbol) | Change | Effect on demand for X |
|---|---|---|
| Price of a substitute (Py) | Rises | Increases |
| Price of a complement (Py) | Rises | Decreases |
| Income (Y), normal good | Rises | Increases |
| Income (Y), inferior good | Rises | Decreases |
| Tastes (T) | Turn in favour | Increases |
| Expected future price (E) | Expected to rise | Increases now |
| Situation | Working | Quantity (bags) | Change shown as |
|---|---|---|---|
| Start: P = 10, Y = 600 | 500 − 200 + 300 | 600 | — |
| Price rises to 12 | 500 − 240 + 300 | 560 | Contraction (movement up) |
| Income rises to 700 | 500 − 200 + 350 | 650 | Increase (shift right) |
Key terms
- Substitutes
Goods that can replace each other, such as tea and coffee.
- Complements
Goods used together, such as cars and petrol.
- Inferior good
A good whose demand falls as income rises.
3. The Law of Demand
Statement: ceteris paribus, quantity demanded varies inversely with price.
Assumptions: income, tastes, prices of related goods, expectations and population stay constant.
A demand schedule lists price–quantity pairs; plotting them (quantity on the x-axis, price on the y-axis) gives the demand curve, which slopes downward.
Reasons for the downward slope: substitution effect; income effect; diminishing marginal utility; new buyers entering; more uses found for a cheaper good.
| Held constant (ceteris paribus) | Why it matters |
|---|---|
| Income of the consumer | A change in income would shift the curve |
| Tastes and preferences | A new fashion would change demand at every price |
| Prices of related goods | Substitutes and complements change demand |
| Expectations of future prices | Expected rises make people buy now |
| Size of the population | More buyers raise market demand |
Key terms
- Ceteris paribus
Other things remaining the same.
- Substitution effect
Buying more of a good because it has become relatively cheaper.
- Income effect
Buying more because a lower price raises real income.
4. Market demand
Market demand is found by horizontal summation: at each price, add the quantities of all buyers. If a buyer stops buying above some price, the market curve above that price is made of the remaining buyers only, which can create a kink.
The market curve lies to the right of every individual curve and slopes downward.
| Price (₹) | Asha | Bilal | Charu | Market |
|---|---|---|---|---|
| 10 | 5 | 4 | 6 | 15 |
| 15 | 4 | 3 | 4 | 11 |
| 20 | 3 | 2 | 3 | 8 |
| 25 | 2 | 1 | 1 | 4 |
Key terms
- Horizontal summation
Adding quantities demanded by all buyers at each price.
5. Movement along and shift of the demand curve
- Change in quantity demanded (own price): extension when the price falls, contraction when it rises — a movement along one curve.
- Change in demand (other determinants): increase (rightward shift) or decrease (leftward shift) — two curves.
To classify any event, first check whether the own price changed.
| Movement along the curve | Shift of the curve | |
|---|---|---|
| Cause | Own price of the good | Income, tastes, related prices, expectations |
| Names | Extension (price falls), contraction (price rises) | Increase (right), decrease (left) |
| Number of curves | One | Two (old and new) |
Key terms
- Extension
More bought because the own price fell.
- Increase in demand
More bought at the same price because another determinant changed.
6. Exceptions to the Law of Demand
- Giffen goods: inferior necessities of the very poor; a strong negative income effect outweighs the substitution effect.
- Veblen goods: status goods whose appeal rises with their price.
- Expectations: buyers who expect further rises buy more now.
- Emergencies: essentials bought whatever the price.
In these cases the demand curve may slope upward over some range.
| Exception | Why more is bought at a higher price | Imagined example |
|---|---|---|
| Giffen good | Strong negative income effect on an inferior staple | Poorest families and a cheap staple grain |
| Veblen good | Status: a higher price raises its appeal | Designer watches in Mumbai |
| Expectations | Buyers expect the price to rise further | Gold before a predicted price jump |
| Emergencies | Essentials bought whatever the price | Candles and water before a flood |
| Giffen good | Veblen good | |
|---|---|---|
| Who buys it | Very poor households | Rich households |
| Kind of good | Inferior necessity | Luxury status good |
| Reason | Income effect outweighs substitution effect | Higher price signals status |
Key terms
- Giffen good
An inferior good whose quantity demanded rises with its price.
- Veblen good
A prestige good demanded more at a higher price.
Exam tips
Common mistakes
- Writing "increase in demand" for a price-led change (it is an extension).
- Drawing one curve for a shift, or two curves for a movement.
- Adding prices instead of quantities when building market demand.
- Treating every good as normal: for an inferior good a higher income lowers demand.
- Confusing Giffen goods (poor households, inferior staple) with Veblen goods (rich households, status).
How marks are usually awarded
- 1-mark items: the correct option or a one-line answer.
- 2 marks: two clear points, or a point with a labelled diagram.
- 3 marks: three points, or a calculation with its interpretation.
- 5 marks: each part answered in order, with labelled diagrams where asked.
- Board papers also set 4-mark (2 + 2) and 8-mark (4 + 4) questions in parts: answer each part separately.