MEANING OF ‘DEMAND’ IN ECONOMICS
‘Demand’ means a consumer’s desire to buy the quantity of any commodity or service at various prices during a given period, and the consumer is backed by enough money to pay i.e purchasing power for that commodity or service demanded. Demand for a commodity or service is a photographic picture of the consumer’s attitude towards a commodity. This consumer’s attitude gives rise to his actions in purchasing a certain number of units of a commodity at various given prices. Thus, demand become only effective when a consumer has adequate money and willingness to buy the commodity or service that he wants to acquire.
Ingredients of Demand in Economics that make it complete
Here it is pertinent to mention that despite the consumer having sufficient money to buy any commodity, demand is not complete unless he has the willingness to buy that commodity. Conversely, the mere desire for a commodity or service does not constitute its demand, if it is not backed by the ability of the consumer to pay. Moreover, demand for any commodity or service is always expressed concerning a particular price and a particular period.
DEFINITIONS OF ‘DEMAND’ IN ECONOMICS
Keeping into account the above essential conditions of ‘demand’, many economists have defined the ‘Demand’ in their way. These main definitions of which are as follows: –
According to F. Benham, “The demand for anything at a given price is the amount of it which will be bought per unit of time at that price.”
According to Bober, “the various quantities of a given commodity or service which consumers would buy in one market in a given period of time at various prices, or at various incomes, or at various prices of related goods.,”
In economics, ‘Demand’ always refers to a schedule. It is not a single quantity. The quantity of the commodity or service which is purchased at any particular price is called the quantity demanded.
Demand and Utility.
People demand commodities and services to satisfy their wants. More specifically, Utility means the amount of total satisfaction or benefits that a consumer derives from consuming a commodity or service. It is also defined as the human want-satisfying power of a commodity or service. Utility is a subjective concept hence, it varies from person to person that is different persons derive different amounts of utility from the consumption of the same commodity. In economics, the utility of a good or service is important to understand because it directly influences the demand as it is a determinant of the demand for a commodity. It is assumed that every individual will make effort to maximize their utility or satisfaction from the goods that they buy and consume.
The consumers’ demand for goods or services for their satisfaction is called direct demand. The utility is a subjective entity and resides in the minds of men. Being subjective, it varies with different persons, that is, different persons derive different amounts of utility from a given good. People know the utility of commodities or services through introspection after consumption.
The Concept of Utility
The person’s willingness for a commodity depends upon the utility that he expects to derive from it. The more utility a consumer expects from a commodity, the more intense his desire for that commodity. Here, it is notable that no question of ethics or morality is involved in the use of the word, ‘utility’ in economics. As such, some religious people may be considered an immoral desire for substance abuse but has no such meaning attached to economics. Thus, in economics, the concept of utility is ethically neutral. Furthermore, a commodity may not be useful in the ordinary sense of the term, but still, these commodities provide utility to some people. For instance, alcohol and cigarettes may harm peoples but it possesses utility for those who derive satisfaction with.
Demand and Quantity Demanded
Demand is an economic concept that refers to a consumer’s willingness to buy a commodity or service at various given prices during a period. Many factors influence the demand for a commodity such as Prices of related commodities, Income of the consumer, Tastes and preferences, Substitutes or complements, and so on. These factors are called the determinants of demands. The determinants of demand are also known as demand shifters. If there is a change in any of the above factors, then there must be a change in the demand of the consumer for a commodity. Individual consumer demand and market demand for a commodity may be distinguished.
Market demand refers to the total sum of all individual consumers’ demand for a commodity available in the market who are willing and able to buy that product at various prices during a period. if Considering such a commodity or service available in the market that is facing more demand from consumers. These consumers are capable to pay for and so, the price of that commodity or service instantly rises.
In short, Market demand is the willingness and the purchasing power of customers to buy a commodity or service at a given price.
What is an example of market demand?
Market demand is calculated based on the number of consumers who have the ability to buy and how much they are willing to spend. If 10,000 consumers can afford a product of your company and all 100% are willing to buy your product, the market demand is 10,000.
It is essential to know that the demand for a commodity and the quantity demanded are two different concepts of economics. Where demand refers to the quantities of a commodity that consumers plan to buy at various prices of a good during a period, the quantity demanded is the total amount of a commodity or service that consumers plan to buy at a particular price at a particular time. It is not necessary that the consumers actually bought the quantity demanded. Sometimes, the quantity demanded is greater than the quantity of the good available so the quantity of the good bought is less than the quantity demanded of it. The quantity demanded is measured as the total amount of any commodity a consumer wish to buy per unit of a particular period such as some quantity of a good per day, per week, per month, and so on.
The demand function describes the functional relationship between the Quantity demanded of a commodity and the various factors that influence it (Determinants). The determinants of demand that influence it are the Price of the commodity or service, Income of the consumer, Prices of related commodities & services, Future patterns of the consumer i.e. his Tastes and preferences, and expenditure incurred by the producers on the advertisement of a commodity.
The demand function for a commodity can be expressed in the following manner :
Qd= f(Px, I, Pr, T, A) …(1)
Where: Qd = quantity demanded of the commodity or service
f = Function of the commodity or service
Px = price of the commodity or service
I = Income of the consumer
Pr= Prices of related commodities & services
T = Tastes and preferences of the individual
A = Advertising expenditure made by the
producers of the commodity.
QUANTITY DEMANDED OF A COMMODITY OR SERVICE AND ITS PRICE
In economics, it is necessary to understand the relationship between the quantity demanded of a good or service and its price. there is an inverse relationship between the price of a commodity or service and its quantity demanded. Thus, When the above-mentioned determining factors of demand other than the Price of the commodity are constant, if the price of the commodity or service decreases, its quantity demanded will increase. On the contrary, if the price of the commodity or service increases, the quantity demanded of it will decrease.
QUANTITY DEMANDED OF A COMMODITY OR SERVICE AND INCOME OF CONSUMERS
there is a direct relationship between the income of consumers and the quantity demanded of a commodity or service. Thus, When the other determining factors remain constant if the income of consumers increases that will cause the quantity demanded to rise and a decrease in income causes the quantity demanded of the commodity to fall.
Here it is relevant to mention that if the income of the consumers increases, the whole demand curve will shift to the right, and, contrary to it, if income decreases, the whole demand curve will shift to the left. Similarly, changes in other determining factors such as tastes, prices of related commodities, and advertising expenditure cause shifts in the demand curve and are therefore called shift factors.