what are types of demand and concept of change in demand vs change in quantity?

Types of Demand

There are three types of demand:

1. Price Demand

• Price demand shows the relationship between the price of a commodity and the quantity demanded.

• Law: When the price increases, the demand decreases, and when the price decreases, the demand increases (inverse relationship).

• The price demand curve slopes downwards from left to right.

$$Dx = f(Px)$$

---

2. Income Demand

• Income demand explains the relationship between the consumer's income and the demand for goods.

• Generally:

  • When income increases, demand increases.

  • When income decreases, demand decreases.

• The income demand curve usually slopes upwards from left to right for normal goods.

$$Dx = f(Y)$$

Types of Income Demand:

• Normal or Superior Goods: Best quality goods. Demand increases with income. The curve slopes upwards.

• Inferior Goods: Lower quality goods. Demand decreases when income increases. The curve slopes downwards.

---

3. Cross Demand

• Cross demand shows the relationship between the price of one good and the demand for another good.

• It explains how substitutes and complementary goods affect demand.

$$Dx = f(Py)$$

Types of Cross Demand:

• Substitute Goods:

  • Goods that can replace each other (e.g., tea and coffee, pen and pencil).

  • If the price of coffee rises, demand for tea rises.

  • The curve slopes upwards from left to right (direct relationship).

• Complementary Goods:

• Goods used together (e.g., car and petrol, cement and bricks).

• If the price of petrol rises, demand for cars falls.

• The curve slopes downwards from left to right (inverse relationship).

---

Change in Demand vs Change in Quantity Demanded

Changes in demand are of two types:

1. Extension and Contraction of Demand

• Happens due to change in price, keeping other factors constant.

• Extension: When price falls, demand increases.

• Contraction: When price rises, demand decreases.

• Single demand curve is used to explain this.

---

2. Increase and Decrease of Demand

• Happens when factors other than price (like income, taste, population) change, while price remains constant.

• Increase in Demand:

  • A new demand curve is formed to the right of the original.

• Decrease in Demand:

  • A new demand curve is formed to the left of the original.