Last Updated: 7/13/2022 Show
Advertising & Editorial Disclosure quality verified Quality Verified On This Page Featured Experts What Is Demand?Demand refers to the consumer’s desire and willingness to buy a product or service at a given period or over time. Consumers must also have the ability to pay for something they want or need as determined by their disposable income budget. Therefore, demand is a force that affects economic growth and market expansion. Loading... Understanding DemandThere are two factors involved in economic demand. First, it is based on the willingness of consumers to buy a commodity. It can be described as consumer preference and taste. Second, demand is also determined by the consumers’ ability to buy the product or service at a certain price. That means the buyer must have sufficient funds to pay for the purchase. Demand, along with supply in economics, helps drive the economy and may affect prices. Formula for DemandCalculating the number of goods or services consumers are willing to buy at every given market price will determine market demand. It can be described in the following mathematical expression:
What Affects Demand?There are various factors that drive demand, including cost, income, preference and more. These factors also affect consumers’ purchase decisions. Here are the fundamental determinants of demand:
Demand ScheduleDemand schedule refers to a table showing the relationship between pricing and the quantity of demand. It shows different market prices and the quantities demanded at each price. The law of demand serves as the guide for the table or ceteris paribus, which means all other things remain unchanged. Analysts and economists can plot the demand curve using the data in the demand schedule table. Below is an example of a demand schedule. Market Demand Schedule
Demand CurveDemand curve refers to the graphical representation of the relationship of cost and quantity demanded. It is based on the demand schedule data and represented as a curve on a graph. The Y-axis represents the prices while the X-axis represents the quantity demanded. It also shows the application of the law of demand — where higher prices lead to lower demand. In understanding markets, demand curves are often combined with supply curves. In doing so, you can determine the equilibrium price and equilibrium quantity. You will find the price point where supply and demand intersect. Below is an example of how to find the demand curve using the example demand schedule in the above section. Examples of DemandFFXIV runs out of digital copiesConcept: Relationship of Demand and Supply; Taste and Preference Square Enix decided to release Final Fantasy 14 as a subscription-based massively multiplayer online role-playing game (MMORPG). Digital copies were sold through the issuance of an access key. Due to an influx of new players, the high demand made it hard for the company’s servers to keep up. According to speculations, the company decided to briefly pause sales due to overwhelming server demand. While the increase in the game’s popularity can be seen as a result of influencers, it has been gaining traction consistently due to the cooperative, friendly and engaged community the game has. Semiconductor prices set to hike in 2022Concept: Composite demand Since the last quarter of 2020, the price of semiconductors have been rising. Some foundries and factories chose to increase their chip prices. These are due to an increase in the cost of materials and logistics. Additionally, device makers are competing to get adequate supplies since the chip shortage began. They also have to meet the higher demand due to increasing usage of electronics. Semiconductors are by-and-large the lifeblood of modern electronics and are used in items such as mobile phones, computer parts and automobiles. Twitch implements region-specific pricingConcept: Price demand Twitch, a popular online streaming platform, allows users to financially support creators via subscriptions. It has gained popularity throughout the years and has expanded its reach beyond video gamers. Recently, the platform decided to implement region-specific pricing to match the income and willingness to spend of viewers living in less developed regions. This move aims to help expand the platform’s global subscriber base. Aside from Twitch, other companies also practice region-specific pricing. Examples of these are Netflix and Spotify. Fast-food chain pricingConcept: Competitive demand Despite having a favorite fast-food chain, consumers can opt to go to a competitor if their first choice is not available. Different fast-food chains compete for the same target market and demand.
The 7 Types of Demand1 Joint DemandThis is the quantity demanded for multiple products or services that are used and demanded together. It is best described by complementary commodities. However, demand for one item is not dependent on the demand for the other one. For instance, pen and ink refills or cars and gasoline. 2 Composite DemandA change in the cost of an item with multiple uses can result in a large change in demand across various usages. For example, if the cost of milk increases, demand for cheese, butter and cream may decrease. Likewise, a rise in demand for any of these products can lead to a shortage in supply for the other ones. Therefore, prices may rise. 3 Short-Term and Long-Run DemandShort-term demand reflects the immediate reaction of consumers to price changes, given that all other factors are constant. Long-run demand, on the other hand, shows how adjustments following the changes in price, supplies or other factors can affect demand. 4 Price DemandThis type of demand refers to the number of goods or services a buyer is willing to purchase at a given price and period. It can also be seen as the amount a person is willing to spend to get a product or service. 5 Income DemandThis is the demand for a quantity of a product or service determined based on consumers’ [high or low income level](https://www.moneygeek.com/living/resources/how-to-live-on-low-income/). Generally, demand tends to increase as consumers make more income. Additionally, preferences and expectations may also change along with a change in income level. Income demand shows that consumers often make purchase decisions based on what they can afford. 6 Competitive DemandCompetitive demand is seen when consumers have alternative goods or services to choose from. For instance, consumers may prefer name-brand over store-brand items. However, demand for store-brand items will increase when name-brand items are out of stock. 7 Direct and Derived DemandDirect demand, which is also known as autonomous demand, applies to final products, such as mobile phones, clothes and food. Meanwhile, derived demand is for products that come from other items' usage. When the demand for one product increases, the demand for production for an intermediate good will increase. For example, demand for cheese can cause an increase in demand for milk. In another example, the demand for steel depends on the demand for its uses, such as for producing cans and car parts. Demand FAQsMoneyGeek answers some frequently asked questions to help you better understand what demand is and how it impacts the economy. Expert InsightsUnderstanding demand will give you an idea of how prices move. MoneyGeek interviewed an industry leader and an academic to provide expert insight about this concept.
Emir Bacic Economic Expert and Co-Founder of Pricelisto Kyle Kroeger Finance Expert and Founder of The Impact Investor Krieg Tidemann Assistant Professor of Economics at Niagara University About the Author sources
What is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service?Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease the quantity demanded, and vice versa.
Is an economic principle relating to the relationship between consumer demand for goods and services and their prices in the market?Demand theory is an economic principle relating to the relationship between consumer demand for goods and services and their prices in the market. Demand theory forms the basis for the demand curve, which relates consumer desire to the amount of goods available.
What is a basic principle of the law of demand?The law of demand is a fundamental principle of economics that states that at a higher price, consumers will demand a lower quantity of a good. Demand is derived from the law of diminishing marginal utility, the fact that consumers use economic goods to satisfy their most urgent needs first.
Which economic term is defined as the willingness and ability to buy a good or service?Demand can be defined as the ability and willingness of an individual to buy a good or service of their choice at any one given price.
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