Handouts for unit 2 - Learning Unit Two Net Contact Hours 10 hrs Basics of Demand and Supply Analysis Concepts of Demand In common language demand and

Handouts for unit 2 - Learning Unit Two Net Contact Hours...

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Learning Unit Two Net Contact Hours - 10 hrs Basics of Demand and Supply Analysis Concepts of Demand In common language, “demand” and “desire” are used as synonyms. But in economics, demand implies more than desire.Otherthing remaining the same, the price of goods or services increases as its demand increases and vice versa. Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants. Thus, demand means desire which is backed by price of goods and services willingness and ability to pay. Therefore, demand is a composition of: 1. Desire 2. Ability to pay 3. Willingness to pay What is effective demand? The effective demand must satisfy the following requisites; a) Desire for a specific commodity; b) Sufficient resources to purchase the desired commodity; c) Willingness to spend the resources; d) Availability of the commodity at; Certain price Certain place Certain time In this way, demand is an effective desire to obtain certain commodity at certain price, time and place. Definition of demand According to Prof. Marshall, “Demand refers to the quantities of commodity that the consumers are able and willing to buy at each possible price during a given period of time, other things being equal” Features of demand Effective desire Certain price Certain time Certain place Types of Demand Demand may be classified into three major types:- 1. Price Demand Price demand shows the relationship between price of goods and quantity demanded. If the price of goods is higher consumers will purchase less quantity of goods and if the price is lower, consumer will purchase more quantity of goods. It means there is inverse relationship between price and quantity demanded i.e. higher the price lower the demand and lower the price higher the demand. 2. Income Demand
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Other things remaining the same, income demand indicates the relationship between income of the consumer and the quantity of demanded commodity. In other words, it relates to the various quantities of commodity that will be bought by the consumer at various levels of income. Here, demand of goods depends upon the income of consumer. Generally, if income of consumer increases the demand of goods also increases and vice- versa. a) In case of normal goods, there is positive relationship between income and quantity demanded i.e. higher the income higher the demand and lower the income lower the demand. b) But in case of inferior goods, there is inverse relationship between income and quantity demanded. 3. Cross Demand It is a situation, where change in the price of one commodity results in the change of the demand of other commodity. In this way, cross demand indicates how the demand for a commodity is affected by changes in the price of related goods. Cross demand function will be as under Dx = f (Py) Where, Dx = Demand for X Commodity Py = Price of Y Commodity Related goods may substitute or complement. Let us understand cross demand in the case of these two types of goods separately.
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