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DEMAND
THEORY
Page 2


DEMAND
THEORY
What is a Demand ?
Demand can be defined as the willingness and ability of consumers to purchase a given 
amount of a good or service at a given price.
In another term, demand for any commodity is the desire, ability and willingness to buy a 
product or service.
Illustration:
? Desire to have a Mercedes but do not have enough money - Wishful Thinking
? In Spite of having the money, you do not want to spend on Mercedes - Want
? Your desire to have a Mercedes with the ability and willingness to pay for it combined 
together will be - Demand
Page 3


DEMAND
THEORY
What is a Demand ?
Demand can be defined as the willingness and ability of consumers to purchase a given 
amount of a good or service at a given price.
In another term, demand for any commodity is the desire, ability and willingness to buy a 
product or service.
Illustration:
? Desire to have a Mercedes but do not have enough money - Wishful Thinking
? In Spite of having the money, you do not want to spend on Mercedes - Want
? Your desire to have a Mercedes with the ability and willingness to pay for it combined 
together will be - Demand
What is a Demand Function ?
Demand function shows the functional relationship between quantity demanded for a 
commodity and its various determinants.
Demand functions measures how much of a given commodity consumers will demand at 
various prices, income levels, or values of other variables that affect demand.
There are two types of Demand Functions:
? Individual Demand Function
? Market Demand Function
Page 4


DEMAND
THEORY
What is a Demand ?
Demand can be defined as the willingness and ability of consumers to purchase a given 
amount of a good or service at a given price.
In another term, demand for any commodity is the desire, ability and willingness to buy a 
product or service.
Illustration:
? Desire to have a Mercedes but do not have enough money - Wishful Thinking
? In Spite of having the money, you do not want to spend on Mercedes - Want
? Your desire to have a Mercedes with the ability and willingness to pay for it combined 
together will be - Demand
What is a Demand Function ?
Demand function shows the functional relationship between quantity demanded for a 
commodity and its various determinants.
Demand functions measures how much of a given commodity consumers will demand at 
various prices, income levels, or values of other variables that affect demand.
There are two types of Demand Functions:
? Individual Demand Function
? Market Demand Function
What is a Demand Function ?
Factors determining Individual Demand Function
Individual Demand is a Function of : 
Dx = f ( Px, PR, Y, T, E )
Where, Dx = Demand for the commodity X
Px = Price of the commodity X
PR = Price of the related goods
Y = Income of the consumers
T = Taste and Preference
E = Expectations of the buyers
Page 5


DEMAND
THEORY
What is a Demand ?
Demand can be defined as the willingness and ability of consumers to purchase a given 
amount of a good or service at a given price.
In another term, demand for any commodity is the desire, ability and willingness to buy a 
product or service.
Illustration:
? Desire to have a Mercedes but do not have enough money - Wishful Thinking
? In Spite of having the money, you do not want to spend on Mercedes - Want
? Your desire to have a Mercedes with the ability and willingness to pay for it combined 
together will be - Demand
What is a Demand Function ?
Demand function shows the functional relationship between quantity demanded for a 
commodity and its various determinants.
Demand functions measures how much of a given commodity consumers will demand at 
various prices, income levels, or values of other variables that affect demand.
There are two types of Demand Functions:
? Individual Demand Function
? Market Demand Function
What is a Demand Function ?
Factors determining Individual Demand Function
Individual Demand is a Function of : 
Dx = f ( Px, PR, Y, T, E )
Where, Dx = Demand for the commodity X
Px = Price of the commodity X
PR = Price of the related goods
Y = Income of the consumers
T = Taste and Preference
E = Expectations of the buyers
What is a Demand Function ?
Factors determining Market Demand Function
Individual Demand is a Function of : 
Dx = f ( Px, PR, Y, T, E, N, DI, G )
Where, Dx = Demand for the commodity X
Px = Price of the commodity X
PR = Price of the related goods
Y = Income of the consumers
T = Taste and Preference
E = Expectations of the buyers
N = Number of Customers in Market
DI = Distribution of Income (DI)
G = Government Policy
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FAQs on PPT: Demand and Elasticity of Demand - Economics Class 11 - Commerce

1. What is demand in commerce?
Ans. Demand in commerce refers to the quantity of a product or service that consumers are willing and able to purchase at a given price within a specific period. It is influenced by factors such as price, income, consumer preferences, and market trends.
2. What is elasticity of demand?
Ans. Elasticity of demand measures the responsiveness of quantity demanded to changes in price. It indicates how sensitive consumers are to price changes. If demand is elastic, a small change in price will result in a proportionately larger change in quantity demanded. If demand is inelastic, a change in price will have a relatively smaller impact on quantity demanded.
3. How is the price elasticity of demand calculated?
Ans. Price elasticity of demand is calculated using the following formula: Price Elasticity of Demand = (% Change in Quantity Demanded / % Change in Price) The result is typically a negative value, as the change in quantity demanded and price move in opposite directions. The absolute value of the elasticity coefficient is considered to determine elasticity (e.g., elastic if greater than 1, inelastic if less than 1, unitary if equal to 1).
4. What factors affect the demand for a product?
Ans. Several factors influence the demand for a product, including: 1. Price: As price decreases, demand generally increases, and vice versa. 2. Income: Higher income levels often lead to increased demand for normal goods and decreased demand for inferior goods. 3. Consumer preferences: Changing tastes, preferences, and trends can significantly impact demand. 4. Availability of substitutes: If close substitutes are available, demand may be more elastic. 5. Complementary goods: The demand for a product may be influenced by the availability and price of complementary goods.
5. How does understanding demand and elasticity of demand benefit businesses?
Ans. Understanding demand and elasticity of demand is crucial for businesses as it helps them: 1. Set optimal pricing strategies: By analyzing demand elasticity, businesses can determine how price changes will affect quantity demanded and adjust their pricing strategies accordingly. 2. Forecast sales and manage inventory: Knowledge of demand patterns allows businesses to forecast sales accurately and manage inventory levels efficiently. 3. Identify market opportunities: Identifying the demand for specific products or services can help businesses identify market gaps and opportunities for growth. 4. Make informed production decisions: By understanding demand, businesses can make informed decisions regarding production levels, resource allocation, and market targeting. 5. Stay competitive: Understanding demand dynamics allows businesses to adapt to changing market conditions, stay competitive, and meet customer needs effectively.
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