What are the various Types of demand?
Answers
Some of the important kinds of demand are: 1. Price demand, 2. Income demand, 3. Cross demand, 4. Direct demand, 5. Derived demand or Indirect demand, 6. Joint demand and 7. Composite demand:
1. Price demand:
Price demand refers to the different quantities of the commodity or service which consumers will purchase at a given time and at given prices, assuming other things remaining the same. It is the price demand with which people are mostly concerned and as such price demand is an important notion in economics. Price demand has inverse relation with the price. As the price of commodity increases its demand falls and as the price decreases, its demand rises.
2. Income demand:
Income demand refers to the different quantities of a commodity or service which consumers will buy at different levels of income, assuming other things remaining constant. Usually the demand for a commodity increases as the income of a person increases unless the commodity happens to be an inferior product. For example, coarse grain is a cheap or inferior commodity. The demand for such commodities decreases as the income of a person increases. Thus, the demand for inferior or cheap goods is inversely related with the income.
3. Cross demand:
When the demand for a commodity depends not on its price but on the price of other related commodities, it is called cross demand. Here we take closely connected or related goods which are substitutes for one another.
For example, tea and coffee are substitutes for one another. If the price of coffee rises, the consumer will be induced to buy more of tea and, hence, the demand of tea will increase. Thus in case of substitutes, when the price of one related commodity rises, the demand of the other related commodity increases and vice-versa.
But in case of complimentary or joint demand goods, e.g., pen and ink, horses and carriages etc. when the price of one commodity rises, the demand for it will fall and as a result of it the demand for the other joint commodity also falls (even though its price remains the same). For example, if the price of horses increases, their demand will fall and as a result of it the demand for carriages will also fall even though their price does not change.
4. Direct demand:
Commodities or services which satisfy our wants directly are said to have direct demand. For example, all consumer goods satisfy our wants directly, so they are said to have direct demand.
5. Derived demand or Indirect demand:
Commodities or services demanded for producing goods which satisfy our wants directly are said to have derived demand. For example, demand for a factor of production (say labor) is a derived demand because labor is demanded to help in the construction of houses which will directly satisfy consumers’ demand.
Thus, the demand for labor which helps us in making a house in a case of indirect or derived demand. The demand for labor is called derived demand because its demand is derived from the demand of a house.
6. Joint demand:
In finished products as in case of bread, there is need for so many things—the services of the flour mill, oven, fuel, etc. The demand for them is called joint demand. Similarly for the construction of a house we require land, labor, capital, organization and materials like cement, bricks, lime, etc. The demand for them is, thus, called a ‘joint demand.’
7. Composite demand:
A commodity is said to have a composite demand when its use is made in more than one purpose. For example the demand for coal is composite demand as coal has many uses—as fuel for a boiler of a factory, for domestic fuel, for oven for steam-making in railways engine, etc.