Class 11 Economics — Demand (Complete In-Depth
Guide)
Contents
1. What is Demand? (recap)
2. Normal and Inferior Goods — detailed explanation + Engel curves
3. Substitute and Complementary Goods — definitions, examples, cross-elasticity
4. Derived, Joint, Composite, and Competitive Demand — what they mean and examples
5. Exceptions to the Law of Demand: Giffen and Veblen goods (conditions + examples)
6. Elasticities in detail: Price, Income, Cross — formulas, interpretation, arc elasticity example
7. How to draw & read graphs (step-by-step)
8. Practical examples & short case boxes
9. Quick summary & exam tips
1. What is Demand? (recap)
Demand refers to the quantity of a commodity that consumers are willing and able to purchase at different
prices during a given period of time. Key features: demand is effective only when backed by ability to pay and
willingness. It is always stated for a specific time period (per day/week/month). Understanding demand tells
producers how much to supply and helps explain price formation in markets.
2. Normal and Inferior Goods
Normal goods are goods for which demand rises when consumer income rises (all else equal). -
Characteristic: positive income elasticity of demand (Ey > 0). - Subtypes: necessities (Ey positive but less
than 1) and luxuries (Ey > 1). - Examples: branded clothing, fresh fruits, smartphones (often treated as
normal). - Economic intuition: as people become richer they buy more of these goods or better-quality
versions of them.
Inferior goods are goods for which demand falls as consumer income rises (Ey < 0). - Characteristic:
negative income elasticity of demand. - Examples: certain low-quality staples, cheap instant noodles, or used
clothing in some contexts. (Note: whether a good is 'inferior' can vary by income range and culture.) -
Economic intuition: as people earn more, they switch to better substitutes or higher-quality alternatives,
reducing demand for the inferior good.
Engel Curves (income → quantity demanded)
Figure: Engel curve for a normal good — upward sloping (income ↑ → quantity ↑).
Figure: Engel curve for an inferior good — downward sloping (income ↑ → quantity ↓).
3. Substitute and Complementary Goods
Substitute goods are goods that can replace each other in consumption. If two goods are substitutes, an
increase in the price of one causes an increase in demand for the other (ceteris paribus). - Cross elasticity of
demand (Exy) for substitutes is positive (Exy > 0). - Examples: tea and coffee; butter and margarine; two
competing brands of soft drink. - Practical implication: firms watch competitor pricing because raising price
may cause consumers to switch to substitutes.
Complementary goods are goods used together. When two goods are complements, an increase in the
price of one reduces the demand for the other. - Cross elasticity of demand (Exy) for complements is negative
(Exy < 0). - Examples: cars and petrol; printers and ink cartridges; coffee machines and coffee pods. -
Practical implication: joint marketing and bundling strategies are common for complements.
Figure: Rightward shift in demand for good B after a price rise for substitute good A.
4. Derived, Joint, Composite, and Competitive Demand
Derived demand is demand for a factor of production that results from the demand for final goods. Example:
demand for steel is derived from demand for cars and construction projects. Joint demand refers to goods
that are demanded together because they are used together (often complements). Example: camera and
memory card if they are purchased together. Composite demand means a single commodity is demanded
for multiple uses. Example: milk can be demanded for direct consumption, as well as for making butter,
cheese, or curd. Competitive demand essentially refers to goods that compete for the same purpose (very
similar to substitutes). Example: tea vs coffee as a morning beverage.
5. Exceptions to the Law of Demand: Giffen and Veblen
Goods
Giffen goods are an exceptional class of inferior goods where a rise in price leads to an increase in quantity
demanded. Conditions required: 1. The good must be an inferior staple (a large portion of the consumer's
budget). 2. The income effect of a price rise must outweigh the substitution effect (very strong negative
income effect). 3. There are few or no close substitutes for the staple. Historical/empirical examples are rare;
the phenomenon is mostly of theoretical interest (classic case: certain staple foods in extreme poverty
situations).
Veblen goods are luxury or status goods where higher prices may increase desirability because price itself
signals prestige. Examples: designer handbags, some high-end watches, luxury cars. Demand may rise with
price in the relevant range because consumers buy them as status symbols.
6. Elasticities in Detail
Elasticity measures responsiveness. Key elasticities: - Price Elasticity of Demand (Ed): responsiveness of
quantity demanded to a change in the price of the same good. Formula (point/percentage): Ed = (% change in
Q) / (% change in P). Because % changes depend on base values, the arc elasticity formula is often used
for discrete changes: Ed(arc) = [(Q2 - Q1)/((Q1 + Q2)/2)] ÷ [(P2 - P1)/((P1 + P2)/2)]. Interpretation: |Ed| > 1
(elastic), |Ed| < 1 (inelastic), |Ed| = 1 (unit elastic). - Income Elasticity of Demand (Ey): Ey = (% change in
Q) / (% change in income (Y)). If Ey > 0 → normal good; Ey < 0 → inferior good. If Ey > 1 → luxury; 0 < Ey < 1
→ necessity. - Cross Elasticity of Demand (Exy): Exy = (% change in Qx) / (% change in Py). If Exy > 0 →
substitutes; Exy < 0 → complements; Exy = 0 → independent goods.
Arc Elasticity Example (worked): Suppose price falls from Rs. 5.00 to Rs. 4.00 and quantity rises from 10
units to 15 units. - Change in quantity = Q2 - Q1 = 5 units. - Average quantity = (Q1 + Q2)/2 = 12.50. -
Percentage change in quantity (arc method) = 0.4000 (i.e. 40.00%). - Change in price = P2 - P1 = -1.00. -
Average price = (P1 + P2)/2 = 4.50. - Percentage change in price (arc method) = -0.2222 (i.e. -22.22%). - Arc
price elasticity Ed = (0.4000) / (-0.2222) = -1.800. Interpretation: Ed ≈ -1.800 (negative sign indicates inverse
demand relation). |Ed| ≈ 1.800 > 1 → demand is price-elastic in this range.
Figure: Demand curve showing two observation points used in the arc elasticity example.
7. How to draw & read graphs (step-by-step)
- Axes: Price (P) on vertical axis, Quantity (Q) on horizontal axis. - Draw demand points from demand
schedule, then join to form demand curve (usually smooth and downward sloping). - To illustrate movement
along the curve (change in quantity demanded), mark two points on the same curve with different prices. - To
show a shift in demand (change in demand): draw a second demand curve to the right (increase) or left
(decrease) of the original curve. - When graphing Engel curves: Income on horizontal (or vertical) axis and
Quantity on the other axis; for normal goods the curve slopes upward, for inferior goods it slopes downward.
8. Practical Examples & Case Boxes
- Petrol (complement example): Petrol and cars are complements. A sustained rise in petrol prices can
reduce demand for cars, especially less fuel-efficient ones. - Tea vs Coffee (substitute example): If tea
price rises a lot, some consumers switch to coffee; firms watch competitor pricing closely. - Instant noodles
(possible inferior good): At low incomes people may buy more instant noodles; as incomes rise they switch
to fresh or branded foods, reducing noodle demand (if treated as inferior in that context).
9. Quick Summary & Exam Tips
- Always mention 'ceteris paribus' (other things remaining the same) when stating the law of demand. -
Distinguish between 'change in quantity demanded' (movement along curve) and 'change in demand' (shift of
curve). - For elasticity questions, show formula, computation steps, and interpretation (elastic/inelastic/unit). -
Use real-life examples where possible; examiners like practical illustrations (e.g., petrol & cars, tea & coffee).
- Remember sign conventions for cross and income elasticities (positive for substitutes/normal goods,
negative for complements/inferior goods).
