1. DERIVED DEMAND: Derived demand arose when the demand for a final commodity brings about demand for it input. When there is demand for automobiles, automobile manufacturers will demand for labour, metals and other inputs. Demand for furniture will necessitate the demand for woods. Also, increased demand for bread will necessitate the demand for more flour, sugar, butter and other inputs.
2. COMPOSITE DEMAND: Composite demand refers to commodity that serves different purposes. For example, wood can be used for making tables, chairs, bed and doors. If there is a sudden increase in demand for doors, it will require more demand for woods in order to meet the increased demand for doors. This will necessarily increase the price of woods, as a result the cost of producing other goods (chairs, tables, bed etc.) from wood will rise. This will in turn increase their prices. Using the example of cow. Milk and meat can be gotten from cow. If there is an increase in demand for meat, there will be short supply of milk as a result the price of milk will go up.
3. JOINT OR COMPLEMENTARY DEMAND: This is a case where two goods are jointly needed to satisfy customers need. For example, cars and petrol. An increase in the demand for cars will increase the demand for petrol. An increase in the price of Compact Disk Player will negatively affect the demand for Compact Disk (CD). Another example is bread and butter or jam. Scarcity of bread will reduce the demand for butter and jam.
4. COMPETITIVE DEMAND: Goods are said to be competitive if they serve a similar purpose. For example, Butter and Margarine, Coke and Pepsi. A decline in the price of Coke will make it demand to increase, this will reduce the demand for Pepsi. An increase in the price of Margarine will reduce it demand, consumers will then buy more of Butter.
FACTORS DETERMINING DEMAND FOR GOODS AND SERVICES
1. Prices of the Commodity: The higher the price of a commodity the lower the quantity demanded. The lower the price, the higher the quantity demanded.
2. Prices of other Commodities: Three types of commodities exist in this context.
i) Substitutes: If a rise in the price of one commodity leads to an increase in the demand for another commodity or vice versa, the two commodities are said to be substitutes. Substitutes are goods which satisfy similar wants such as tea and coffee, and Pepsi and Coke. If the price of Pepsi rises consumers will buy more of Coke.
ii) Complementary Commodities: When the demand for two commodities are linked to each other, such as cars and petrol, tea and sugar etc, they are said to be complementary goods. Complementary goods are goods which cannot be used without each other. If the price of cars is too expensive, their demand will fall, so will the demand for petrol fall and vice versa.
iii) Unrelated Goods: This is a case of two commodities that are unrelated, for example Television sets and Mattress. A change in the price of one will not affect the other.
3. Income: An increase in consumer’s income will increase their purchasing power and so will their demand for goods and services. A reduction in consumer’s income will witness a reduction in purchasing power and as well reduce demand for goods and services.
4. Tastes: A change in the tastes of consumers due to fashion in favour of a particular product will increase it demand and a change in tastes against a particular product will cause a decline in it demand.
5. Price Expectation: An expectation of a price increase of a particular product will increase demand for it on the other hand an expectation of a fall in price will shrink the demand for a product.
DISTINCTION BETWEEN A SHIFT OR CHANGE AND MOVEMENT ALONG A DEMAND CURVE
A SHIFT OR CHANGE IN DEMAND
A shift in demand curve is caused by a change in any of the factors affecting demand such as income, prices of other commodities, tastes but not caused by a change in the price of the commodity itself. As illustrated below.
If there is a change in one of factor, say income, while others remain constant. An increase in the consumer’s income will shift the consumer income from DD to D1D1 at the same price of “P”.
Before an increase in income, the consumer buys Q1 but with an increase in his income, his demand increased to Q2. The opposite will happen if there is a fall in the consumer’s income. He will move from Q2 to Q1.
MOVEMENT ALONG A DEMAND CURVE
A movement along a demand curve takes place when there is a change in the quantity demanded due to a change in the commodity’s own price. As shown below.
When there is a change in the price of a commodity from P1 to P2, the consumer will afford to buy more and will move from Q1 to Q2. This is an increase in demand. The consumer will move along the same curve. On the other hand, an increase in price from P2 toP1 will cause a contraction along the same curve from Q2 to Q1.