Class 12 Economics Chapter 3A: Demand Analysis

Key concepts: Demand Analysis

Demand

A desire that is backed by willingness to buy and the ability to pay. Demand = desire + willingness to purchase + ability to pay, so a mere wish is not demand.

Demand schedule and demand curve

A schedule is a table of prices and quantities demanded; the curve is its graph. Individual demand covers one buyer, market demand is the sum of all buyers at each price.

Reasons for a downward sloping curve

Diminishing marginal utility, income effect, substitution effect, multi-purpose uses of a good and the arrival of new consumers when the price falls.

Types of demand

Direct (consumer goods), indirect or derived (producer goods), joint or complementary, composite (one good with many uses) and competitive (substitutes).

Determinants of demand

Price, income, prices of substitutes and complements, nature of product, population size, expected future prices, advertisement, tastes and fashions, taxation and other factors like climate.

Law of demand

Marshall's law: other things being equal, a higher price means lower quantity demanded and a lower price means higher quantity demanded. Written as Dx = f(Px).

Exceptions to the law

Giffen's paradox, prestige goods, speculation, price illusion, ignorance and habitual goods, where more is bought at a higher price and the curve slopes upward.

Variation versus change in demand

Expansion and contraction come from a price change alone and are movements along the same curve. Increase and decrease come from other factors and shift the whole curve.

Quick revision: important points

• Demand = desire + willingness to purchase + ability to pay.
• Market demand = horizontal sum of individual demands (A + B + C).
• Five types of demand: direct, indirect, joint, composite, competitive.
• Price change alone: expansion or contraction (movement along the curve).
• Other factors change, price constant: increase (right shift) or decrease (left shift).
• Exceptions: Giffen goods, prestige goods, speculation, price illusion, ignorance, habits.

Practice MCQs with answers

1. In Economics, what does the word demand mean?

   1. Any desire a person has for a commodity
   2. A desire backed by willingness and ability to pay
   3. The quantity a firm wants to sell
   4. The stock of a commodity held by a consumer
   Show answer

   Answer: B. A desire backed by willingness and ability to pay
   Demand is an effective desire: it needs willingness and purchasing power, not just a wish.

2. Which expression correctly describes demand?

   1. Desire + supply + price
   2. Need + utility + production
   3. Desire + willingness to purchase + ability to pay
   4. Income + savings + investment
   Show answer

   Answer: C. Desire + willingness to purchase + ability to pay
   A person who wants a car but cannot pay for it has only a desire; adding willingness and ability makes it demand.

3. Who defined demand as the amount of a thing bought per unit of time at a given price?

   1. Benham
   2. Giffen
   3. Keynes
   4. Robbins
   Show answer

   Answer: A. Benham
   Benham's definition links demand to a price and a period of time, which is why demand is a relative concept.

4. A table showing the quantities of a commodity that one consumer will buy at various prices is called a(n)

   1. market demand schedule
   2. supply schedule
   3. demand curve
   4. individual demand schedule
   Show answer

   Answer: D. individual demand schedule
   Individual demand schedule is the tabular record of one consumer's purchases at different prices.

5. How is a market demand schedule obtained from individual schedules?

   1. By subtracting the smallest demand from the largest
   2. By horizontal summation of all consumers' demands
   3. By taking the average price
   4. By multiplying price with quantity
   Show answer

   Answer: B. By horizontal summation of all consumers' demands
   Market demand is the total of what every consumer buys at each price, added along the quantity axis.

All Class 12 Economics chapters

• Chapter 1: Introduction to Micro and Macro Economics
• Chapter 2: Utility Analysis
• Chapter 3A: Demand Analysis
• Chapter 3B: Elasticity of Demand
• Chapter 4: Supply Analysis
• Chapter 5: Forms of Market
• Chapter 6: Index Numbers
• Chapter 7: National Income
• Chapter 8: Public Finance in India
• Chapter 9: Money Market and Capital Market in India
• Chapter 10: Foreign Trade of India

Class 12 Economics notes: all chapters