In ordinary language, the two terms ‘demand’ and ‘desire’ are used as synonyms. A desire is an individual’s wish for something he may or may not be able to buy.
In economics, “demand is the desire backed by the willingness and ability to pay.” Any of them is absent, desire is not a demand. It is called effective demand.
Types of Demand
1] Joint demand – Joint demand is also known as complementary demand. When more than one commodity is used to satisfy the same want these commodities are known as complements of each other. A change in demand of one commodities leads to a change in demand for the other commodities in the same proportion and the same direction. E.g. Car and petrol, ink and pen etc
2] Competitive demand – It is also known as cross demand. These goods are substitutes of each other. A change in demand of one commodity leads to a change in demand for the other in the same proportion and opposite direction. i.e. demand for one good is inversely related to the other. Eg tea or coffee, car or bike etc.
3] Composite demand – It is also known as aggregate demand. In this case the commodity demanded has more than one use.ie it has a composite demand. A change in demand for one composite will affect the supply of the commodity in its other uses and therefore its price will change. Eg electricity used for railways, industry domestic etc.( coal, steel, water)
4] Direct demand –It is also known as pure, conventional or autonomous demand. When a commodity yields a direct satisfaction to the consumer, it is said to have direct demand.All consumer goods have a direct demand.eg a cup of coffee.
5] Derived demand – It is also known as induced demand. When a commodity or a service is does not yields satisfaction to the consumer through some other commodity i.e indirectly it is said to have a derived demand. e.g demand for sugar, coffee powder is derived in the demand for a in a cup of coffee. (e.g. all factors of production).
The law of demand states that an increase in price leads to a decrease in demand, and a decrease in price leads to an increase in demand (it’s an inverse relationship between price and demand. However it’s worth noting that an increase in demand leads to an increase in price and a decrease in demand leads to a decrease in price. The law of demand is established with respect to changes in price, not demand, hence the difference).
Movement along a Demand Curve
A contraction in demand means a fall in the quantity demanded for a product following an increase in its price.
An extension of demand means an increase in the quantity demanded for a product following a fall in price.
Note: a movement along demand curve is caused by changes in the price of the product.
Shift in Demand Curve
The market demand curve shifts outwards. Possible causes are:
- an increase in disposable incomes after tax .
- a rise in the price of substitutes
- a fall in the price of a complement
- tastes and fashion favour the product
- an increase in advertising
- a rise in the population
The market demand curve shifts inwards. Possible causes are:
- a fall in disposable incomes after tax;
- a fall in the price of substitutes;
- a rise in the price of a complement;
- tastes and fashion favour other products;
- a reduction in advertising;
- a fall in the population.