Introductory Economics

Types of changes in demand

Types of changes in demand
a. Increase in demand: With an increase in income, the demand curve shifts to the right. With this demand curve shifts to the right, the quantity demanded increases for all prices. In most cases, an increase in income shifts the demand curve to the right. In this case, the good is called as a normal good.

b. Decrease in demand: As income increases consumers tend to buy less of the inferior goods as they can now afford more expensive normal goods. That is, an increase in income shifts the demand curve for an inferior good to the left.

Price	Quantity	Effect on Demand
10	50	Extension in demand
8	75
10	50	Increase in demand
10	75

Price	Quantity	Effect on Demand
10	50	Contraction in demand
15	30
10	50	Decrease in demand
10	40

Exceptional demand curve: (Geffen’s’ paradox)

• The Giffen Paradox holds that the demand increases when the price rises and vice verse. This behaviour is observed in the following four cases.

• The good may be a necessary item for life.
• Expected shortage in the future
• Adds prestige to the owner and
• Out of sheer ignorance

Types of demand:
1. Price demand :

• Demand is only related with price of the product, keeping other factors constant. Price is indirectly proportionately related with quantity demanded

2. Income demand :

• D= f (income / other factors held constant). When income increases, the demand for superior goods increases and vice versa

3. Cross demand :

• D= f (price of related commodity / other factors held constant) e.g. Demand for tea in relation to the prices of coffee

4. Derived Demand:

• The demand for raw material depends on the demand for final good at the consumer level. The demand for the raw material at the producer level is known as derived demand.e.g More demand for paper will reflect the higher demand for pulpwood

5. Composite demand :

• A commodity can be put to several uses and that commodity may be demanded to satisfy any one or more of such uses; e.g.Electricity may be demanded for several of the household, industrial and decorating purposes