SS2 First Term Economics Lesson Note – Theory of Demand

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WEEK 3

THEORY OF DEMAND

Content

1. Types of demand
2. Distinction between a shift of and movement along demand curve.

Sub-topic One: Types of demand

1. Derived demand: It is the type of demand which occurs as a result of demand for other commodities. The demand for one commodity will necessitate the demand for another commodity. For example, flour and sugar are demanded because there is demand for bread. Labour is demanded to construct the highway because there is a demand for good roads. So, labour , flour and sugar are ‘’derived’’ demand commodities. Demand for all factors of production are derived demand.
2. Joint or complementary demand: It is a demand which occurs when two commodities that are related to each other are demanded at the same time. These two commodities are said to be complementary to each other as a change in the demand for one commodity will bring about a similar change in the demand for the other. Examples of joint demand are bread and butter, tea and milk, car and petrol. Sometimes they are described as ‘’joint demand good’’.
3. Competitive demand: When two commodities are fairly close substitutes to each other, they are in competitive demand. In other words, they serve the same purpose or perform a similar function such that an increase in the demand for one will result in a fall in the demand for the other. Examples of commodities that are close substitutes are Bournvita and Ovaltine, Malta Guiness and Maltina, Omo and Elephant detergents, butter and margarine, etc. if the price of any of the pairs of commodities is high, the consumers may switch over to the other close substitute which has a lower price.
4. Composite demand: Demand is said to be composite when a commodity is required to serve two or more purposes. For example, sugar is widely used in the home for beverages as well as in industries for making pastries and confectionery. If the industrial demand for sugar suddenly increases, it will affect the quantity of sugar demand in the home.

EVALUATION

1. List 4 types of demand
2. Explain any two types of demand.

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