The theory of demand is an essential concept for economics students, especially in class 11. Understanding this theory helps you grasp how markets work and why prices change.
Topics Discussed
Meaning of Demand
Demand refers to the quantity of a commodity that a consumer is willing and able to buy at various prices during a particular period. The three critical aspects of demand are:
- Desire to own a product.
- Ability to purchase it.
- Willingness to pay for it.
Demand is not just the desire for a product; one must also have the means and intent to buy.
Law of Demand
The law of demand states that, other things being equal (ceteris paribus), when the price of a good increases, the quantity demanded of that good falls, and when the price decreases, the quantity demanded rises. This inverse relationship occurs due to factors like diminishing marginal utility—the satisfaction from consuming each additional unit of a good keeps reducing.
| Price (Rs.) | Quantity Demanded (Units) |
|---|---|
| 50 | 500 |
| 40 | 600 |
| 30 | 800 |
| 20 | 1,000 |
| 10 | 1,400 |
Demand Curve
- The demand curve is a graphical representation showing the relationship between the price of a product and the quantity demanded.
- It typically slopes downward from left to right, indicating the inverse relationship between price and quantity demanded.
Example Table (for downward sloping demand curve):
| Price (Rs.) | Quantity Demanded (Units) |
|---|---|
| 100 | 200 |
| 150 | 150 |
| 200 | 100 |
Factors Affecting Demand
Several factors, apart from price, influence the demand for a commodity:
- Price of Related Goods
- Substitute goods (e.g., tea and coffee): Increase in the price of one increases demand for the other.
- Complementary goods (e.g., car and petrol): Decrease in the price of one increases demand for the other.
- Income of the Consumer
- When income rises, demand for normal goods increases.
- For inferior goods, demand falls as income rises.
- Tastes and Preferences
- Tastes and preferences refer to a consumer’s likes and dislikes, which shape their willingness to purchase goods and services.
- Effect on Demand: If consumers develop a favorable opinion due to trends, advertising, or social influence, demand rises even if the price remains the same. Conversely, reduced preference (e.g., outdated fashion) causes a fall in demand.
- Example: When a particular brand is endorsed by celebrities or becomes trendy, its demand increases. If something falls out of fashion, demand for it drops.
- Expectations about Future Prices
- If consumers expect prices to rise in the future, they purchase more now (increasing current demand). If they expect prices to fall, they delay purchases, decreasing current demand
- Number of Buyers in the Market
- The greater the number of buyers, the higher the market demand at every price level. Conversely, fewer buyers mean lower overall demand. This is why marketers and economists closely watch population trends and shifts in the size of specific customer groups.
Movements and Shifts in Demand
Movement Along the Demand Curve
- Expansion (Downward Movement): Increase in quantity demanded due to a decrease in price.
- Contraction (Upward Movement): Decrease in quantity demanded due to an increase in price.
Shift in Demand Curve
- Rightward Shift (Increase in Demand): Demand rises due to factors other than price (e.g., income increases, tastes change favorably).
- Leftward Shift (Decrease in Demand): Demand falls due to factors other than price.
Differences Between Expansion and Contraction in Demand
| Basis | Expansion in Demand | Contraction in Demand |
|---|---|---|
| Price Change | Occurs due to fall in price | Occurs due to rise in price |
| Nature of Change | Quantity demanded increases | Quantity demanded decreases |
| Movement on Curve | Downward on the same demand curve | Upward on the same demand curve |
| Reason | Only price changes (other factors constant) | Only price changes (other factors constant) |
| Example | Price falls from Rs. 10 to Rs. 8, demand rises from 100 to 150 units | Price rises from Rs. 10 to Rs. 12, demand falls from 100 to 80 units |
Differences Between Rightward Shift and Leftward Shift in Demand
| Basis | Rightward Shift in Demand | Leftward Shift in Demand |
|---|---|---|
| Meaning | Increase in demand at same price | Decrease in demand at same price |
| Curve Movement | Demand curve shifts to the right | Demand curve shifts to the left |
| Cause | Change in factors other than price (e.g., higher income, positive trend) | Change in factors other than price (e.g., lower income, unfavorable trend) |
| Effect | Consumers buy more at each price point | Consumers buy less at each price point |
| Example | Increase in consumer income leads to higher demand for electronics | Negative news about a product leads to decreased demand |
Elasticity of Demand
Elasticity of Demand refers to how sensitive the quantity demanded is to a change in price. Some goods are more elastic (responsive to price changes), while others are inelastic.
Types of Demand
It’s important to know the types of demand for class 11 exams. The most important types are:
| Type | Description |
|---|---|
| Price Demand | Depends on the price level of a product. |
| Income Demand | Changes in demand due to consumer income changes. |
| Cross Demand | Relates to changes in demand for a product when the price of another changes. |
| Joint Demand | Demand for products used together (e.g., pen and ink). |
| Composite Demand | Demand for a product that can serve multiple purposes (e.g., wheat for bread and biofuel). |
| Direct and Derived | Direct: For consumer goods; Derived: For goods demanded due to their use in production (e.g., demand for steel for making cars). |
Conclusion
Grasping these fundamentals provides an excellent base for deeper studies in economics and equips you for class 11 exams and beyond. The theory of demand class 11 notes aims to make this concept as clear and approachable as possible for all students.
FAQs
What are the notes on the theory of demand?
Notes on the theory of demand summarize concepts such as the definition of demand, the law of demand, factors influencing demand, and movement/shift in the demand curve. They also detail types of demand and provide graphical illustrations.
What are demand class 11 notes?
Demand class 11 notes refer to concise study materials that explain the basic ideas of demand, including its definition, law, determinants, elasticity, and related diagrams and tables. These notes are crafted to make concepts easy for class 11 students to understand and memorize for exams.
What is the theorem of demand?
The theorem of demand, commonly called the law of demand, asserts that there is an inverse relationship between the price of a good and the quantity demanded, assuming other factors remain constant. When price goes up, demand falls; when price goes down, demand increases.
What are the 4 types of demand?
The four fundamental types of demand every student should know are:
1. Price Demand: Based on the price of the product.
2. Income Demand: Based on changes in consumer income.
3. Cross Demand: Based on prices of related (substitute or complementary) goods.
4. Joint Demand: When two goods are demanded together (e.g., bread and butter).