In-Depth Notes on Demand
4.1 Concept of Demand
1. Understanding Demand
In economics, the terms demand, desire, and want are often confused. However, demand is
distinct from a mere desire. A person may desire many goods, but only those desires backed
by the ability to pay and willingness to buy constitute demand.
Key Features of Demand
A desire becomes an effective demand only when it meets the following three conditions:
1. Ability to Pay – The consumer must have sufficient purchasing power.
2. Willingness to Pay – The consumer must be ready to spend money on the product.
3. Availability of the Good – The good must exist in the market for the consumer to buy.
2. Definition of Demand
Demand refers to the quantity of a good that a consumer is willing and able to buy at
various prices in a given period.
3. Quantity Demanded
The quantity demanded is the exact amount of a product that consumers are both willing
and able to buy at a specific price and time period.
4. The Law of Demand
The Law of Demand states that, ceteris paribus (all other factors remain constant), the price
of a good and its quantity demanded are inversely related.
5. Demand Schedule
A demand schedule is a table that shows the quantities of a good that will be demanded at
different prices.
6. Demand Curve
A demand curve is a graphical representation of the demand schedule, showing the inverse
relationship between price and quantity demanded.
7. Demand Function
The demand function expresses the relationship between quantity demanded and price
mathematically.
8. Market Demand
Market demand refers to the total demand for a product in the entire market, calculated by
summing up all individual consumer demands at each price level.
9. Factors Affecting Demand
Demand is influenced by several factors apart from price:
1. Income of Consumers – Higher income increases demand for normal goods and decreases
demand for inferior goods.
2. Price of Related Goods: Substitutes and Complements.
3. Tastes and Preferences – Changes in trends or advertising affect demand.
4. Expectations of Future Prices – If consumers expect prices to rise, demand increases.
5. Population Size and Demographics – A growing population increases market demand.
6. Seasons and Weather – Demand for some products (e.g., heaters, raincoats) changes with
seasons.
Conclusion
Demand is not just a desire but an effective desire backed by purchasing power. The law of
demand states that price and quantity demanded are inversely related. Demand can be
represented in tables (demand schedule), graphs (demand curve), or equations (demand
function). Market demand is the sum of individual consumer demands and is affected by
income, prices of related goods, tastes, expectations, and population. This fundamental
concept is crucial in business and economics, as it helps firms and policymakers predict
consumer behavior and make informed decisions.
