Demand

Published May 8, 2023

Definition of Demand

Demand describes the amount of a product or service that consumers are willing and able to buy at a given price within a specific time frame. It represents the entire relationship between quantity and price, showing how the quantity demanded changes as the price varies.

Example

Let’s consider the demand for smartphones. Assume that the price of a particular smartphone is USD 600. At this price, the number of units sold is 1,000. However, if the price drops to USD 500, the demand increases to 1,500 units, and if the price reaches USD 400, the demand further increases to 2,000 units. As the price continues to decrease, the demand for the product increases.

On the other hand, when the price of the same smartphone is USD 700 or above, the demand for the product decreases. For instance, at a price of USD 800, the demand may be only 500 units. This inverse relationship between demand and price is known as the Law of Demand.

Why Demand Matters

Demand is a one of the most fundamental concepts in economics as it determines the market equilibrium price and quantity of a product or service. Understanding demand curves and its relationship with price allows businesses to optimize their pricing strategy, determine product positioning, and forecast future sales.

Similarly, it also helps policymakers in setting taxes and regulations on products and in determining optimal levels of government intervention. In summary, analyzing demand is essential for both businesses and governments to make informed decisions.