Discuss the different types of demand.

Ans.

Types of Demand

(i) Individual Demand and Market Demand: Individual Demand refers to the quantity of a product an individual is willing to buy at a particular price of the product during a specific time period given his income, price of the related goods (substitutes and complementary), consumer’s taste and preferences, future price expectations.

The total quantity which all the consumers of a product are willing to buy at a given price per time unit, given their money income, tastes and preferences and prices of other products (mainly substitutes) is known as Market Demand for the product.

(ii) Demand for Firm’s Product and Industry’s Product: The quantity that a firm can sell at a given price over a period of time means the demand for firm’s product. The totals of demand for the product of all the firms of an industry are known as the market demand or demand for industry’s product.

To understand the difference between the two types of demand, we must analyse different market situations. In the case of highly competitive market, the difference between the two demands is not of much use, e.g.. fruit and vegetables market. In these markets, each seller has a minor share in the market. Therefore, demand for firm’s product is not important. In the case of oligopolistic market (a market where there are many şellers), a difference between demand for firm’s product and industry’s product is very useful for managerial decision making. In such a market, the product one firm is so much different from the competitors that the consumers treat each product as different from each other. This gives the firm’s an opportunity to charge different prices and capture a larger market share through advertisement and promotional activities. For example, markets for TV, cars refrigerators, toilet soaps etc. belong to this category of markets. In case of monopolistic market (one firm industry) and perfect competition, the difference between the two types of demand is not of much use from decision making point of view. In the case of monopoly, the demand for the firm’s product is same as that of demand for industry’s product. In the case of perfect competition, the products of all the firm’s is same and the consumers do not differentiate between products of different firms and the price is determined by demand and supply. The firms have little opportunity to make changes in the price.

(iii) Autonomous and Derived Demand: An autonomous demand or direct demand for a product is one that arises on its own out of a natural desire to consume or enjoy a product. An autonomous demand is independent of the demand for any product. For example, demand for commodities which arise directly from the biological or physical needs of a human being like food, clothes, shelter etc.

On the other hand, the demand for a commodity that arises because of the demand of some other commodity, called ‘parent product’, is known as derived demand. For example, demand for fertilizers, land, agricultural products/tools is a derived demand because these goods are demanded because of demand for food. Similarly, demand for cement, steel bricks is a derived demand because they are demanded because of demand for housing and commercial building.

(iv) Demand for Durable and Non-Durable Goods: Demand is also classified under demand for durable and non-durable goods. Durable goods are those, whose total utility (use) is not exhausted by a single use. These goods can be used repeatedly over a period of time. e.g., clothes, shoes, furniture, TV, refrigerator etc. Non-durable goods on the other hand, are those, which can be used or consumed only once. e.g., food items, cooking gas, drinks, soaps, cosmetics etc. The utility of non-durable goods get exhausted on a single use.

(v) Short-term and Long-term Demand: Short-term demand refers to the goods that are required over a short period. In this category are mostly found goods like fashion consumer goods, seasonal products, inferior substitutes during high price and scarcity of superior goods. E.g., demand for umbrella, raincoats, gum-boots, cold drinks, ice creams are demand of seasonal nature, New Year greetings cards and crackers on the occasion of Diwali.

Long-term demand, on the other hand refers to the demand, which exists over a long period. Most basic goods have long-term demand. All goods, both durable and non-durable goods have long-term demand, although people may ask for different brands at different point of time.

(vi) Joint Demand and Composite Demand: When two or more products are jointly demanded at the same time to satisfy a single want, it is called Joint Demand or Complementary Demand. E.g., cars and petrol, pens and ink, tea and sugar etc.

A commodity is said to have Composite Demand when it can be put to several alternative uses. Products like steel, leather, coal, paper and factors of production like land, labour, capital are example of such goods. E.g., coal is demanded by factories, railways and household uses.

(vii) Direct Demand and Indirect Demand: Demand for goods that are directly used by the ultimate consumer is known as Direct Demand. Since, such goods are used for final consumption, they are also known as Consumer’s Goods Demand. E.g., bread, tea, houses, automobiles etc.

Indirect Demand is the demand for goods that are not used by consumers directly. They are used by producers for producing other goods. Thus, they are also known as Producer’s Goods Demand.