Types of Demand

Posted on Jan 30 2017 - 2:37pm by Preeti

   Types of Demand

There are large number of goods and services available in every economy. Their classification is important in order to carry out a demand analysis for managerial decisions.  Following categories have made on the basis of the nature of commodity demanded (consumer goods and capital goods), time unit for which it is demanded (Short run and long run), Relation between goods etc.

  1. Consumer goods and Producer’s goods

Consumer goods are those which are sold to general consumer. Marketers usually define such goods as those which are brought by the ultimate consumers for their own personal use or for the use of others in their household. The other type of goods is known as capital goods. These are goods which are not wanted for their own sake but are used as inputs in the production of other goods and services. Example of Consumer goods are :

Food items, drinks, clothes, kitchen utensils, bankers, transporters etc.

The producer goods consist of plant and machines, factory buildings, services of business employees, raw material, intermediate etc. Whether a good is consumer’s or producer’s depends on its use. For example if a table is used in drawing room of a house it is consumer goods while if its used in the reception of an office it is a producer’s good.  The distinction is useful for a proper demand analysis. The demand for consumer’s goods depends on household’s income and for producer’s goods varies with the production level among other things.

2. Direct(Autonomous) and Derived Demand

The goods whose demand is not tied with the demand for some other goods are said to have autonomous demand, while the rest of have derived demand. Thus, the demand for all consumers goods are autonomous demands, for they are needed to satisfy consumers demands. In contrast demand for all producer’s goods are derived demands because they are needed in order to produce consumer’s or producer’s goods. For example, if there is a demand for mobile phones with radio, internet and camera, the machinery require to produce such phones will also be demanded. So demand for mobile phone is an example of direct demand, while machinery is an example of derived demand.

3. Perishable and Durable goods

Consumer goods may be further classified as durable goods and non-durable goods. Durable goods are those goods which last for relatively long time and can be consumed multiple times. Example of durable goods are : Furniture, cars, clothes, refrigerator, shoes and TV. Perishable goods(non-durable goods) are those which perish or become unusable after sometime and hence can be consumed only once. The perishable goods includes all services (services of teachers and doctors) , food items, coal and electricity.

4. Normal/superior and inferior goods

Normal goods or superior goods are those whose demand increases as income increases and the latter are those whose demand falls as income goes up, and vice versa. For example milk, refrigerator, television, education and the good quality of food grains and clothes are superior goods while poor quality of food grains and clothes are inferior goods. Inother words, the superior goods are the ones which the rich people consume while the inferior goods are the poor people’s consumption. Further, these are relative concepts. Thus, for example, scooter/motor bike is a superior good in relation to a pedal bike, while it is an inferior good relative to a car.

5. Necessary, Comforts and Luxury Goods

In common sense, the necessary goods are essential for existence, comfort goods make the life comfortable and luxury goods are luxuries of life. However in economies they have special meanings. These all are considered as superior goods but of different degrees. Thus as the consumers income rise more of each of these three kinds of goods is consumed but the proportion of the consumption budgets differ. In case of necessary goods, as income increases, while the consumption expenditure on them increases, the percentage of total expenditure/income spent on each of them goes down, In case of comforts, the said percentage remains the same, while in case of luxuries, it goes up.

6. Substitute and Complementary goods

Goods that compete with each other to satisfy any particular want are called substitutes. For example, for many people tea and coffee are substitute goods, and so are rice and chapatti, scooter and car, Coke and Pepsi and so on. Further different brands of cars, scooters, soaps, toothpastes, computers, televisions, mobile phones etc. are substitutes to each other. Goods which create joint demand are complementary goods, therefore demand for one commodity is dependent upon demand for the other one. If purchases of cars increases, demand for petrol will also increase. If price of petrol goes up, demand for cars may go down, or alternatively demand for fuel efficient vehicles may increase.

7.  Individual and Market Demand

The demand for a good by an individual buyer is called individual’s demand while the demand for a good by all buyers in a market is called market demand. The theory of demand is based on individual demand. It helps in understanding the various dimensions of demand analysis. However, a seller is not interested in an individual consumer’s demand, but in the total market demand for its product, i.e. demand by all the consumers for its product, known as market demand. Demand for Indica is an example of individual demand, total sale of Indica in a year is the annual market demand, and total demand for cars in a year is industry demand for one year.

8. Firm and industry demand

Most goods are produced by more than one firm and so there is a difference between the demand facing an individual firm and that facing an industry. For example, cars in India are manufactured by Maruti, Hindustan Motors, Tata motors and several other companies. Demand for Maruti car alone is a firms’ demand whereas demand for all kinds of cars is industry’s demand. Similarly demand for IFB washing machine is a firm’s demand while that for all brands of washing machines is the industry demand. The distinction is very important as while there are close substitutes for firm’s products, no such close substitute exists for industry’s product. Thus, while a Honda car is a close substitute for a Hyundi  car, it is only a poor or distant substitute for a Honda Activa scooty.

9. Demand by Market Segments and by Total Market

If the market is large in terms of geographical spread, product uses, distribution  channels, customer sizes or product varieties and if any one or more of these differences were significant in terms of product price, profit margins, competition, seasonal patterns or cyclical sensitivity, then it may be worthwhile to distinguish the market by specific segments for a meaningful analysis. In that case, the total market demand would mean the total demand for the product from all market segments while a particular market segment demand would refer to demand for the product in that specific market segment. For example one can talk about the domestic demand for Maruti cars versus the expert demand for that product, demand for Maruti cars in Western India in relation to demand for Maruti in each of Southern, Eastern and Northern regions, demand for steel for household in relation to demand for industrial uses and so on.

10. Recurring and Replacement demand

Consumable goods have recurring demand i.e. they are consumed at frequent intervals, like you eat food twice a day, take tea and snacks three to four times a day, read newspaper everyday, fill petrol or diesel in car every week and so on. Demand is per unit of time, therefore producers or sellers of such goods know that consumers make purchase on short term basis, hence pricing should be done accordingly. Goods like televisions, cars, bikes, mobiles, furniture and houses are all examples of durable consumer goods, they are purchased to be used for a long period of time. But they wear and tear over time due to use or obsolescence of technology, thus they need replacement. At the same time, all capital goods like machinery also need replacement. Thus the producers of these goods have to make long term planning.

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B.Tech Biotechnology,MBA(HR and Marketing), UGC/CBSE NET Qualified

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