Demand In Economics
DEMAND AND SUPPLY are the two backbones of
the economy. Demand is defined as the amount of a particular economic good
or service that a consumer or group of consumers will have to purchase at
a given price; whereas; Aggregate Demand is the total level of demand for
desired goods and services (at any time by all groups within a national
economy) that makes up the gross domestic product (GDP). It is a sum of
consumption expenditure, investment expenditure, government expenditure
and net exports.
Demand in economics, refers to desire backed by ability and the
willingness to purchase. Dictionary of Business Terms gives a business
definition of demand which states, “Demand is neither need nor desire; the
essence of demand is the willingness to exchange value (goods, labour,
money), for varying amounts of goods or services, depending upon the price
asked”. This clearly identifies the three variables involved in demand:-
1. The quantity of goods / services to be
purchased.
2. Price per unit.
3. The time unit.
However, the major determinants of demand are: -
? Price of goods / services.
? Income of the consumers.
? Price of related commodities (substitutes / complementary goods).
? Total number of consumers in the market.
? Distribution of population.
? Consumer expectation of future change in prices.
? Advertising / Promotion impact on goods / services.
? Taste of consumers.
The demand can be for consumer / producer / perishable / durable goods; it
can be for total market / market segment; industry demand / firm demand;
derived / autonomous demand; short / long run demand. The demand for goods
/ services varies inversely; hence; the demand curve is usually sloping
down as the consumers will buy more as the price decreases. The
relationship between Price and Quantity demanded is also known as the
Demand Relationship; whereas; Demand Forecasting attempts to predict the
likely demand for a product / services in the future.
The relationship between demand and price can be easily explained with Law
of Demand. Law of Demand states that that other things being equal there
is an inverse relationship between the price and quantity demanded of a
product / services, i.e. more is purchased at a lower price and
vice-versa. This relationship can be easily explained through demand
schedule (tabular representation) and demand curve (graphical way); but it
has certain assumptions like change in income / price of other goods /
taste, uncertainty about the future, size of population and its
consumption, advertising / government policy and natural factors; however;
Giffens goods(demand for inferior goods varies directly with their price);
goods for snob appeals / quality products / scare products are few
exceptions to the Law of Demand.
Finally, the Dictionary of Marketing terms has rightly explained Demand
as, “A desire for a product or services that results in purchase. Demand
levels vary along a continuum from negative demand that leads to avoidance
to excess demand that outpace supply”. In a nutshell it is a quantity of
goods and services purchased at a given price.
Written By:
Rupal Jain,
is a Lecturer at Atharva Institute of
Management Studies (Mumbai) and she can be reached at
jainrupal@sify.com |
|
