What is Demand?
Demand is how much people want to buy goods or services at different prices over a certain period. It depends on factors like price, personal preferences, income, and the price of other goods. In simple terms, demand is the amount of a product that customers are willing and able to buy at various prices.
The demand curve is a graph that shows how the price of a product affects the quantity people are willing to buy. The price is shown on the vertical axis, and the amount demanded is on the horizontal axis. This graph helps us see how price changes influence buying decisions.
The Law of Demand
The law of demand says that when the price of a product goes up, people will usually buy less of it, assuming everything else stays the same. In other words, if something becomes more expensive, customers are less likely to buy it. This happens because the higher price makes the product less affordable, so people might choose a cheaper alternative or decide not to buy it at all.
The consumer preference theory helps us understand how people decide what to buy based on the prices of products and their budget. The amount a person buys is influenced by these factors, and it's often explained in microeconomics through the demand function.
Determinants of Demand
There are several factors affecting demand, but here are the top five:
Price of the Product: The demand for a product changes when its price changes. People will buy a product at a certain price only if other factors remain the same.
Income of Consumers: When people's income increases, they tend to buy more goods. On the other hand, if income decreases, demand for goods also drops.
Price of Related Goods: The price of related products affects demand. For example, if the price of bread goes up, the demand for butter may go down. If the price of one product rises, people may start buying a substitute instead. For instance, if tea becomes more expensive, people may buy more coffee instead.
Consumer Expectations: If people expect their income to rise or think the price of a product will go up, they might buy more of it now. Conversely, if they expect lower income or prices to fall, demand may decrease.
Number of Buyers in the Market: If there are more or fewer people interested in buying a product, demand will either increase or decrease.
Types of Demand
Here are some important types of demand:
Price Demand: This is the amount of goods or services that a customer will buy at a certain price, assuming all other factors stay the same.
Income Demand: This refers to the amount of goods or services a person will buy at different income levels, again assuming other factors remain constant.
Cross Demand: This type of demand depends on the price of other related products. For example, the demand for butter can change based on the price of bread.
Direct Demand: This is when goods or services satisfy a person’s wants directly, like buying food to eat.
Derived Demand (Indirect Demand): This type of demand refers to the need for goods or services that are used to produce something else, such as the demand for materials needed to build a car.
Joint Demand: This is when multiple things are needed together to produce a product. For example, to make bread, you need flour, an oven, fuel, and other items. The demand for these items is joint demand.
Composite Demand: This occurs when a product or service is used for more than one purpose. For example, coal is used for both energy production and manufacturing.
FAQs on Demand: Law, Determinants and Types
1. What is a Demand Draft?
A demand draft is a type of payment used in banking. It is a written order from a bank to another bank, directing the transfer of a specific amount of money from one account to another. Unlike a cheque, which can be bounced due to insufficient funds, a demand draft is a guaranteed payment because the money is paid in advance by the person requesting the draft.
2. What is Demand Forecasting?
Demand forecasting is the process of predicting future customer demand for a product or service over a specific period. It helps businesses plan production, manage inventory, set prices, and make strategic decisions. By analysing historical data, market trends, and other relevant factors, companies can estimate how much of a product will be needed in the future.
3. What is Demand Analysis?
Demand analysis is the process of studying and understanding consumer demand for a product or service. It involves examining factors that influence the quantity of goods or services consumers are willing to buy at different price levels, over a specific period.
4. What is the Theory of Demand?
The theory of demand explains how the quantity of a product or service that consumers are willing to buy changes in response to different factors, primarily the price of the product. The theory is based on the idea that consumers make purchasing decisions to maximise their satisfaction or utility and that their demand for a good is influenced by various factors.
5. What does On-Demand mean in Economics?
In economics, "on demand" refers to goods or services that are available for purchase whenever the consumer wants them, without delay. It means that the product or service can be accessed or acquired at any time, depending on the buyer's needs, as long as it is in stock or available.
6. What is the difference between demand and quantity demanded?
Demand refers to the entire relationship between prices and quantities over a range of prices, while quantity demanded refers to the amount consumers are willing to buy at a specific price.
7. What is demand elasticity?
Demand elasticity measures how sensitive the quantity demanded is to a change in price. If demand changes significantly with price changes, it's considered elastic; if it changes little, it's inelastic.
8. How does income affect demand?
Generally, as income increases, demand for goods and services also increases, especially for normal goods. For inferior goods, demand may decrease as income rises.
9. What is derived demand?
Derived demand occurs when the demand for a product or service is driven by the demand for another related product. For example, the steel demand is derived from the demand for cars and buildings.
10. What is the difference between individual demand and market demand?
Individual demand refers to the quantity of a product one consumer is willing to buy at various prices, while market demand is the total quantity demanded by all consumers in the market.
