What is Demand in Economics
What is Demand in Economics?
Demand in economics is a lot more different than in general perspective. Here we have to see demand on the consumer and market level. It’s not just a want or need of a person. It is more than that. Let’s see.
A good or service any person wants, get it from the market by paying a certain price for that. But the person will not buy a commodity until it completes the three basic requirements of demand.
1) Desire or want of the commodity to buy.
2) Ability to pay and
3) Willingness to pay.
Only when all the above three-factor are present in the consumers then it is likely to produce demand in the market. Thus the only fact of desire or want does not contribute to increasing demand unless it is backed by the ability to buy or willingness to pay.
To sum up.
“Demand in economics for a commodity is the quantity which a consumer is willing to buy at a particular price at a particular time”.
Factors affecting Demand in Economics.
So far we have understood the basic definition of demand but do you know the most important factors that affect it. Let’s see.
Price of a product is the most important factor that affects the demand for the product.
In the above table, we clearly see that when the price is 5rup then the demand is 30 apple but as soon as price increases the demand decreases.
Here comes the law in demand.
The law of Demand in economics
“If other things remaining the same, there is an inverse relationship between price and quantity demanded of a product, i.e, increase in price reduces the quantity demanded and decreases in price increases the quantity.”
That means the price is an inverse relationship with price, hence it is necessary that the two must have a negative slope on a graph.
In the above video you will get to know about the basics of demand and supply and the area where to find demand is effective.
But wait on a minute, demand in economics is not fully dependent on the price, other factors are.
1) Price of the product(explained above)
2) The income of the consumer.
3) Prices of related goods:-
4) Consumer’s taste and fashions and
5) The expectation of future prices.
1) Price of the product
2) The income of the consumer.
Well, this is an interesting factor. In general, if the income of the person increases then obviously he will buy more stuff and hence demand will increase but on the other side, if the income of the person increases then he will stop spending his money on inferior goods hence their demand will decrease because of his shifts toward superior goods.
For example:- if a person buys 5 kg normal rice and 200g paneer per week, so when his income increases, he prefers to buy 500g paneer, 2kg normal rice and 3kg basmati rice.
3) Prices of related goods.
a) Complementary Goods
The goods which sell along with each other, like Cricket bat and cricket ball. Here the sale of cricket ball depends upon the number of cricket bat sold. if for some reason like COVID-19 the sale of cricket bat decreases then demand of a cricket ball will also decrease. Some more example:- CD player and CDs, Cinema tickets and popcorn, Guns and bullets.
b) Substitute Goods
The goods which are opposite to each other, like coffee and tea. Here if the prices of tea increases then definitely the demand for coffee will increase as now people will switch to coffee. Some more example:- cars and petrol, scooter and motor cycle etc.
4)Consumer’s taste and fashion.
If the consumer at any moment of time or due to some reason or fashion have a certain demand for a particular product, and people are ready to pay for it at a higher price. Here at this moment, a very suitable example will be of sanitizers. if we observe, sanitizers are in the market for a long time, but very few people actually buy it. After the entry of COVID-19, the prices and demand for sanitizers increase drastically.
5)Expectation on future Prices.
The current demand of the product very much depends upon its future nature i.e, if the price of a product is expected to rise in the future, them people will stock that product in advance and increase the demand. If the product expected price tends to get lower than present then people will sell that commodity. These kinds of up and down are mostly seen in stock markets.
To learn about Mutual Funds :- https://myknowledgeclub.com/types-of-mutual-funds-in-india/
To know about demand curves and more visit:- https://www.thebalance.com/demand-curve-definition-types-and-how-it-works-3305705