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Unit-6: Theory of Demand and Elasticity of Demand

demand of commodity on OX-axis and price on OY-axis. DD is Demand Curve. Every point of this Notes
demand curve DD shows the relation in price and demand. When price is 2, demand is 1 unit.
When price is 1, demand is 4 units. Slope of this demand curve flows from upper left side to
lower right side, which shows more prices and less demand and fewer prices and more demand.
2. Market Demand Curve: Market Demand Curve indicates the
summation of quantities demanded by the different consumers on Market Demand Curve is
different prices of a specific commodity. This Demand Curve draws summation of all individual
with the summation of all individual demand curves. demand curves.
Figure 6.2 refers to the Market Demand Curve on the base of Demanded Table 2.

Fig. 6.2

Assumption
There are only two buyers of
the commodity in the market
Y Y Y

Market Demand
D A's Demand D B's Demand D Curve
Curve Curve
4 4 4
Price (`) 3 Price (`) 3 Price (`) 3 D + D 2
2
2
2
1
1 1 1
D D
1 2
0 X 0 X 0 X
12 3 4 12 3 4 5 12 3 4 5
Quantity Quantity Quantity
(i) (ii) (iii)
In Fig. 6.2 OX-axis represents the quantity and OY-axis represents price. Figure 6.2 (i) shows A’s
Demand Curve and in Fig. 6.2 (ii) B’s Demand Curve and in Fig. 6.2 (iii) Market Demand Curve are
shown. When price is 4 per unit, A’s Demand is 1 unit and B’s Demand is 2 units. If in market there
are only two consumers, then market demand will be 1 + 2 = 3. By horizontal summation of Individual
Demand curves, you can find Market Demand Curve, so its slope is negative.

Self Assessment
Fill in the blanks:
1. Demand is a schedule which shows different ......................... of a commodity and refers quantity
demanded of that commodity on each price.
2. Generally, demand of any commodity is fixed by its ..........................
3. In between consumer’s income and demand of commodity, generally ......................... relation founds.

6.3 Determinants of Demand or Demand Function

Here let us differentiate between Individual Demand Function and Market Demand Function.
Individual Demand Function studies the Functional Relationship between demand for any commodity
(with an individual buyer) and its Determinants. Market Demand Function studies with the functional
relationship between Market Demand for any commodity and its different Determiners. Individual
Demand Function can be expressed as—
Q = f (P , P , Y, W, T, E)
x x r

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