Micro Economics

2. IT refers to the quantity
of a commodity which a
consumer is willing to buy
at a particular price
during a particular period
of time.

3.  A demand function is a statement of the
relation between the demand for a product
and all variables (factors) that affect
demand.
 It is also defined as the relation between the
consumers’ optimal choice of the quantity of
a goods and its price is called the demand
function.
Its formula for
Demand Function is q= d(p)

4. Individual Demand
Function
Market Demand
Function

5.  It shows how demand for a commodity, by an
individual consumer in the market, is related to its
various determinants.
Dx= f(Px,Px,Y,T,E)
 Price of commodity: Other things being equal, with
the rise in price of commodity, its demand
contracts, and with a fall in price its demand
extends. This inverse relationship between price of
the commodity and its demand is called Law of
Demand.
 Price of other goods: Demand for good x is
influenced by the price of other goods(z). is called
cross price demand.

6.  Income of Consumer: Change in the income
of the consumer also influences his demand
for different goods. The demand for normal
goods tends to increase with increase in
income and vice versa. On the other
hand, the demand for inferior goods like
coarse grain tends to decrease with the
increase in income and vice versa.

7.  Taste and Preferences: The Demand for
goods and services depends upon the
individual taste and preferences. They
include fashion, habit, custom etc. Taste and
Preferences of the consumer influenced by
advertisement, change in fashion, climate
and new inventions etc.

8.  Expectation: If the consumer expects that
price in future will rise, he will buy more
quantity in present, at existing price.
Likewise if the consumer expects that price
in future will fall, he will buy less quantity in
present, or may even postpone his demand

9.  Market Demand Function shows how market
demand for a commodity is related to its
various determinants.It is expressed as
under:
Mkt. Dx =f(Px,Pr,Y,T,E,N,Yd)
 Apart from the above factors, we can Say
that only two types of new factors are added
in market demand function. This are:
N = Population Size
Yd = Distribution of Income.

10.  Population Size: Demand increase with increase in
population and decrease with decrease in population.
That is because within increase in population size,
the number of buyers of product tends to increase.
Composition of population also affects demand. If
composition of population change, e.g. female
population increases, demand for goods meant for
women will go up.
 Distribution of Income: Market demand is also
influenced by change in the distribution of income in
the society. If income is equally distributed, there
will be less demand. In case of unequal distribution,
most people will have enough money to buy things.

11.  i) Direct and Derived Demands:
Direct demand refers to demand for goods
meant for final consumption; it is the
demand for consumers’ goods like food
items, readymade garments and houses. By
contrast, derived demand refers to demand
for goods which are needed for further
production; it is the demand for producers’
goods like industrial raw materials, machine
tools and equipments.

12.  ii) Domestic and Industrial Demands
The example of the refrigerator can be
restated to distinguish between the demand
for domestic consumption and the demand
for industrial use. In case of certain
industrial raw materials which are also used
for domestic purpose, this distinction is very
meaningful.

13.  iii) Autonomous and Induced Demand
When the demand for a product is tied to the
purchase of some parent product, its demand
is called induced or derived.
Autonomous demand, on the other hand, is
not derived or induced. Unless a product is
totally independent of the use of other
products.

14.  iv) Perishable and Durable Goods’
Demands
Both consumers’ goods and producers’ goods
are further classified into perishable/non-
durable/single-use goods and durable/non-
perishable/repeated-use goods. The former
refers to final output like bread or raw
material like cement which can be used only
once. The latter refers to items like
shirt, car or a machine which can be used
repeatedly.

15.  v) New and Replacement Demands
If the purchase or acquisition of an item is
meant as an addition to stock, it is a new
demand. If the purchase of an item is meant
for maintaining the old stock of
capital/asset, it is replacement demand.
Such replacement expenditure is to
overcome depreciation in the existing stock.

16.  vi) Final and Intermediate Demands
This distinction is again based on the type of
goods- final or intermediate. The demand for
semi-finished products, industrial raw
materials and similar intermediate goods are
all derived demands, i.e., induced by the
demand for final goods. In the context of
input-output models, such distinction is often
employed.

17.  vii) Individual and Market Demands
Individual Demand means quantity demanded
of a good by an individual consumer at
various prices per time period.
Market Demand means the aggregate of the
quantities demanded by all consumers in the
market at different prices per time period.