Definition: The Demand for a product refers to the quantity of goods and services that the consumers are willing to buy at a particular price for a given point of time.
Types of Demand
The demand can be classified on the following basis:
- Individual Demand and Market Demand: The individual demand refers to the demand for goods and services by the single consumer, whereas the market demand is the demand for a product by all the consumers who buy that product. Thus, the market demand is the aggregate of the individual demand.
- Total Market Demand and Market Segment Demand: The total market demand refers to the aggregate demand for a product by all the consumers in the market who purchase a specific kind of a product. Further, this aggregate demand can be sub-divided into the segments on the basis of geographical areas, price sensitivity, customer size, age, sex, etc. are called as the market segment demand.
- Derived Demand and Direct Demand: When the demand for a product/outcome is associated with the demand for another product/outcome is called as the derived demand or induced demand. Such as the demand for cotton yarn is derived from the demand for cotton cloth. Whereas, when the demand for the products/outcomes is independent of the demand for another product/outcome is called as the direct demand or autonomous demand. Such as, in the above example the demand for a cotton cloth is autonomous.
- Industry Demand and Company Demand: The industry demand refers to the total aggregate demand for the products of a particular industry, such as demand for cement in the construction industry. While the company demand is a demand for the product which is particular to the company and is a part of that industry. Such as demand for tyres manufactured by the Goodyear. Thus, the company demand can be expressed as the percentage of the industry demand.
- Short-Run Demand and Long-Run Demand: The short term demand is more elastic which means that the changes in price or income are reflected immediately on the quantity demanded. Whereas, the long run demand is inelastic, which shows that demand for commodity exists as a result of adjustments following changes in pricing, promotional strategies, consumption patterns, etc.
- Price Demand: The demand is often studied in parlance to price, and is therefore called as a price demand. The price demand means the amount of commodity a person is willing to purchase at a given price. While studying the demand, we often assume that the other factors such as income of the consumer, their tastes, and preferences, the prices of other related goods remain unchanged. There is a negative relationship between the price and demand Viz. As the price increases the demand decreases and as the price decreases the demand increases.
- Income Demand: The income demand refers to the willingness of an individual to buy a certain quantity at a given income level. Here the price of the product, customer’s tastes and preferences and the price of the related goods are expected to remain unchanged. There is a positive relationship between the income and demand. As the income increases the demand for the commodity also increases and vice-versa.
- Cross Demand: It is one of the important types of demand wherein the demand for a commodity depends not on its own price, but on the price of other related products is called as the cross demand. Such as with the increase in the price of coffee the consumption of tea increases, since tea and coffee are substitutes to each other. Also, when the price of cars increases the demand for petrol decreases, as the car and petrol are complimentary to each other.
These are some of the important types of demand that the firms must cater to before deciding on the price and other factors related to their products.