Types of Demand - Market Demand Analysis, Business Economics & Finance | Business Economics & Finance - B Com PDF Download

Demand is generally classified on the basis of various factors, such as nature of a product, usage of a product, number of consumers of a product, and suppliers of a product.

The demand for a particular product would be different in different situations.

Therefore, organizations should be clear about the type of demand for their products.

Figure-1 shows the different classifications of demand:

The different types of demand (as shown in Figure-1) are discussed as follows:

i. Individual and Market Demand:

Refers to the classification of demand of a product based on the number of consumers in the market. Individual demand can be defined as a quantity demanded by an individual for a product at a particular price and within the specific period of time. For example, Mr. X demands 200 units of a product at Rs. 50 per unit in a week.

The individual demand of a product is influenced by the price of a product, income of customers, and their tastes and preferences. On the other hand, the total quantity demanded for a product by all individuals at a given price and time is regarded as market demand.

In simple terms, market demand is the aggregate of individual demands of all the consumers of a product over a period of time at a specific price, while other factors are constant. For example, there are four consumers of oil (having a certain price). These four consumers consume 30 liters, 40 liters, 50 liters, and 60 liters of oil respectively in a month. Thus, the market demand for oil is 180 liters in a month.

ii. Organization and Industry Demand:

Refers to the classification of demand on the basis of market. The demand for the products of an organization at given price over a point of time is known as organization demand. For example, the demand for Toyota cars is organization demand. The sum total of demand for products of all organizations in a particular industry is known as industry demand.

For example, the demand for cars of various brands, such as Toyota, Maruti Suzuki, Tata, and Hyundai, in India constitutes the industry’ demand. The distinction between organization demand and industry demand is not so useful in a highly competitive market.

This is due to the fact that in a highly competitive market, organizations have insignificant market share. Therefore, the demand for an organization’s product is of no importance. However, an organization can forecast the demand for its products only by analyzing the industry demand.

iii. Autonomous and Derived Demand:

Refers to the classification of demand on the basis of dependency on other products. The demand for a product that is not associated with the demand of other products is known as autonomous or direct demand. The autonomous demand arises due to the natural desire of an individual to consume the product.

For example, the demand for food, shelter, clothes, and vehicles is autonomous as it arises due to biological, physical, and other personal needs of consumers. On the other hand, derived demand refers to the demand for a product that arises due to the demand for other products.

For example, the demand for petrol, diesel, and other lubricants depends on the demand of vehicles. Apart from this, the demand for raw materials is also derived demand as it is dependent on the production of other products. Moreover, the demand for substitutes and complementary goods is also derived demand.

iv. Demand for Perishable and Durable Goods:

Refers to the classification of demand on the basis of usage of goods. The goods are divided into two categories, perishable goods and durable goods. Perishable or non-durable goods refer to the goods that have a single use. For example, cement, coal, fuel, and eatables. On the other hand, durable goods refer to goods that can be used repeatedly.

For example, clothes, shoes, machines, and buildings. Perishable goods satisfy the present demand of individuals. However, durable goods satisfy both present as well as future demand of individuals. Therefore, consumers purchase durable items by considering its durability.

In addition, durable goods need replacement because of their continuous use. The demand for perishable goods depends on the current price of goods and customers’ income, tastes, and preferences and changes frequently, while the demand for durable goods changes over a longer period of time.

v. Short-term and Long-term Demand:

Refers to the classification of demand on the basis of time period. Short-term demand refers to the demand for products that are used for a shorter duration of time or for current period. This demand depends on the current tastes and preferences of consumers.

For example, demand for umbrellas, raincoats, sweaters, long boots is short term and seasonal in nature. On the other hand, long-term demand refers to the demand for products over a longer period of time.

Generally, durable goods have long-term demand. The long-term demand of a product depends on a number of factors, such as change in technology, type of competition, promotional activities, and availability of substitutes. The short-term and long-term concepts of demand are essential for an organization to design a new product.