What is Demand in Economics?
Demand is an economic principle can be defined as the quantity of a product that a consumer desires to purchase goods and services at a specific price and time.
Factors such as the price of the product, the standard of living of people and change in customers’ preferences influence the demand. The demand for a product in the market is governed by the Laws of Economics
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A market is a place where individuals, households, and businesses are engaged in the buying and selling of products and services through various modes.
The working of a market is governed by two forces, which are demand and supply. These two forces play a crucial role in determining the price of a product or service and size of the market.
Introduction of Demand
Demand in economics is a relationship between various possible prices of a product and the quantities purchased by the buyer at each price. In this relationship, price is an independent variable and the quantity demanded is the dependent variable.
Meaning of Demand
In economics by demand, we mean the various quantities of a given good or service which buyer would purchase in one market during a given period of time, at various prices, or at various incomes, or at various prices of related goods.
Economist has given different demand definition but essence is same.
Frederic Charles Courtenay Benham defines demand as “The demand for anything i.e; goods and service, at a given price, is the amount of it, which will be bought per unit of time, at that price.
Read: What is Demand Schedule?
- Demand is always referred to in terms of price and bears no meaning if it is not expressed in relation to price.
For example, an individual may be willing to purchase a shirt at a price of ` 500 but may not be willing to purchase the same shirt if it is valued at ` 1000. In addition, different quantities of a commodity are demanded at different prices.
- Demand is always referred in terms of a time period and bears no meaning if it is not expressed in relation to a time period.
For example, a garment manufacturer has a demand for 200 metres of cloth in a month or 2400 metres of cloth in a year. a statement referring to demand for a commodity or service must include the following three key factors: The quantity to be purchased. The price at which the commodity is to be purchased. The time period when the commodity is purchased.
Read: What is Supply?
Types of Demand
7 Types of Demand in Economics are:
- Price demand: It is a demand for different quantities of a product or service that consumers intend to purchase at a given price and time period assuming other factors, such as prices of the related goods, level of income of consumers, and consumer preferences, remain unchanged.
- Income demand: It is a demand for different quantities of a commodity or service that consumers intend to purchase at different levels of income assuming other factors remain the same.
- Cross demand: It refers to the demand for different quantities of a commodity or service whose demand depends not only on its own price but also the price of other related commodities or services.
- Individual demand and market demand: This is the classification of demand based on the number of consumers in the market. In dividual demand refers to the quantity of a commodity or service demanded by an individual consumer at a given price at a given time period.
- Joint demand: It is the quantity demanded for two or more commodities or services that are used jointly and are, thus demanded together.
- Composite demand: It is the demand for commodities or services that have multiple uses. For example, the demand for steel is a result of its use for various purposes like making utensils, car bodies, pipes, cans, etc.
- Direct and derived demand: Direct demand is the demand for commodities or services meant for final consumption. This demand arises out of the natural desire of an individual to consume a particular product.
Determinants of demand
- Price of a commodity
- Price of related goods
- The income of consumers
- Tastes and preferences of consumers
- Consumers’ expectations
- Credit policy
- Size and composition of the population
- Income distribution
- Climatic factors
- Government policy
Read: 10 Determinants of Demand
Importance of Demand
Demand is considered the basis of the entire process of economic development, hence demand plays an important role in the economic, social and political fields.
The importance of demand are:
- Importance in Consumption
- Advantageous to producers
- Importance in Exchange
- Importance in distribution
- Importance in Public Finance
- Importance of the Law of demand and Elasticity of Demand
- Importance in Religion, Culture and Politics
- Importance in Consumption: Demand implies the schedule of quantities to be purchased over a specific period of time at various prices. A consumer determines the quantity of various commodities to be consumed on the basis of his demand.
- Advantageous to producers: Producers maximize the profit by determining the nature, variety, quantity and cost of production on the basis of demand of various commodities and controlling the supply at appropriate time.
- Importance in Exchange: Quantity demanded is the purchase of a commodity in certain quantity at a certain price, therefore it is exchange. This means that production, purchase and sale of a particular commodity of a particular quality and quantity takes place in demand and it is the process of exchange.
- Importance in distribution: Aggregate social production is determined on the basis of social demand. Production scale is increased with an increase in demand. Resources from various sources are procured to fulfil this increased demand. The share in the national product of a factor of production depends upon its demand.
- Importance in Public Finance: Maximization of social welfare is the prime objective of the process of public finance. Sources of public revenue (inflows) and items of public expenditure (outflows) are determined to achieve this objective.
- Importance of the Law of demand and Elasticity of Demand: The Law of Demand and Elasticity of demand is the most important concepts in economics.
- Importance in Religion, Culture and Politics: Demand of various commodities in the society at various points of time is also very important from the religious, cultural and political point of view. Efforts are made to fulfil the demand of various commodities which arises at the time of various social or religious festivals.
Read: What is Demand Function
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