Demand

Definition of Demand

Demand in economics refers to the quantity of a good or service that consumers are willing and able to purchase at a given price during a specific period.

It's crucial to understand that demand isn't just about wanting something; it's about having the financial means (ability) and the desire (willingness) to acquire it.

The relationship between the price of a good and the quantity demanded is typically inverse. This is known as the Law of Demand.

Factors Affecting Demand

Several factors can influence the demand for a product or service. These factors can cause the demand curve to shift.

• Price of the good itself: As mentioned, a change in the price of the good directly affects the quantity demanded.
• Consumer Income:
  • Normal Goods: As income increases, demand for normal goods increases.
  • Inferior Goods: As income increases, demand for inferior goods decreases.
• Prices of Related Goods:
  • Substitute Goods: If the price of a substitute good increases, the demand for the original good will increase. (e.g., If the price of coffee increases, demand for tea might increase).
  • Complementary Goods: If the price of a complementary good increases, the demand for the original good will decrease. (e.g., If the price of petrol increases, demand for cars might decrease).
• Consumer Tastes and Preferences: Changes in fashion, trends, or advertising can significantly impact demand.
• Consumer Expectations: Expectations about future price changes or availability can influence current demand.
• Population Size and Composition: A larger population or a population with a different demographic profile can affect demand.

The Demand Curve

The demand curve is a graphical representation of the relationship between the price of a good and the quantity demanded. It typically slopes downwards from left to right.

The demand curve illustrates the law of demand: as price falls, quantity demanded rises, and vice versa.

Shifts in the Demand Curve

Changes in factors other than the price of the good will cause the entire demand curve to shift. These shifts are represented by a new demand curve either to the left or the right.