Demand – Types, Determinants & Law of Demand

A set of practice flashcards covering types of demand, determinants of demand, the Law of Demand, and its underlying assumptions.

What is meant by direct demand? Give an example.

Demand for goods and services meant for direct consumption by consumers; e.g., sweets or milk.

What is complementary (joint) demand? Give an example.

Demand for two or more goods that are used together to satisfy a single want; e.g., car and fuel.

What is composite demand? Give an example.

Demand for a commodity that can be put to several uses; e.g., electricity used for lighting, fans, washing machines, etc.

What is competitive demand? Give an example.

Demand for goods that are substitutes for each other; e.g., tea or coffee.

According to the price determinant, how does the price of a product affect its quantity demanded?

When the price is low, consumers buy larger quantities; when the price is high, they buy smaller quantities.

How does consumer income affect demand for a commodity?

A rise in income usually increases demand, while a fall in income decreases demand.

How do the prices of substitute goods influence demand? Provide an example.

If a substitute becomes cheaper, consumers switch to it, reducing demand for the original good; e.g., if sugar becomes expensive, demand for jaggery rises.

How does the price of complementary goods affect demand? Provide an example.

A price rise in one complementary good lowers demand for the other; e.g., higher fuel prices reduce demand for cars.

What happens to demand for necessity goods when their price changes?

Demand remains relatively unchanged because their use is unavoidable (e.g., essential medicines).

How does population size influence market demand?

Larger populations generate greater total demand, while smaller populations create lower total demand.

How do expectations about future prices affect present demand?

If consumers expect future prices to rise, they buy more now; if they expect prices to fall, they buy less now.

In what way can advertisement and sales promotion alter demand?

Effective advertising can change consumer preferences and increase demand for products such as cosmetics or toothbrushes.

How do tastes, habits, and fashions impact demand?

If consumers develop a liking or a new fashion emerges, demand rises; if a product goes out of fashion, demand falls.

How does a high level of taxation influence demand for goods and services?

High taxes raise prices and reduce demand; lower taxes lower prices and can increase demand.

List three ‘other factors’ that can affect demand aside from the main determinants.

Climatic conditions, changes in technology, government policy, and customs/traditions.

Who introduced the Law of Demand and in which publication?

Prof. Alfred Marshall in his 1890 book 'Principles of Economics'.

State the Law of Demand in simple terms.

Other things being equal, a higher price leads to a smaller quantity demanded, and a lower price leads to a larger quantity demanded.

What kind of relationship exists between price and quantity demanded under the Law of Demand?

An inverse (negative) relationship.

Express the functional relationship between demand and price symbolically.

'Dx = f(Px)', where Dx is demand for commodity x and Px is its price.

Assumption 1 of the Law of Demand: What must remain constant regarding income?

The consumer’s income must stay constant.

Assumption 2 of the Law of Demand: What must remain unchanged about population?

The size and composition of the population.

Assumption 3 of the Law of Demand: What about the prices of substitute goods?

Prices of substitute goods must remain constant.

Assumption 4 of the Law of Demand: What about the prices of complementary goods?

Prices of complementary goods must remain constant.

Assumption 5 of the Law of Demand: What must consumers not anticipate?

They must not expect future changes in prices.

Assumption 6 of the Law of Demand: Which consumer factors must remain unchanged?

Tastes, habits, preferences, and fashions.

Assumption 7 of the Law of Demand: What about taxation policy?

No change should occur in the government’s taxation policy.