Demand is the economic principle that refers to a consumer's desire to purchase goods and services and its willingness to pay a price for a specific good or service. Other factors being constant, with an increase in the price of a good or service it will decrease the quantity demanded and vice versa. Market demand, whereas, is the total quantity that is demanded across all the consumers in a market for a particular good. This aggregate demand is defined as the total demand for all the goods and services that are present in an economy. Multiple stocking strategies are used to handle this demand.
Recognizing the Demand Schedule
The most common demand schedule has two columns. In the first column, prices for products are shown in ascending or decreasing order. The quantity of the product required or demanded at that price is listed in the second column. The pricing is set after thorough market research.
When the data from the demand schedule is graphed to generate the demand curve, it provides a visual representation of the price-demand connection, allowing for simple calculation of demand for a product or service at any point along the curve.
Explain Demand Schedule
The Law of Demand states that when the price of a commodity falls, the demand increases and also when the price of the commodity rises, the demand decreases, while other things remain constant. So, there exists an inverse relationship between the price and quantity that is demanded of this commodity. The functional relationship between the price and the quantity demanded can be represented as:
Dx = f(Px).
Now we should know what a Demand Schedule is.
This is a statement in a tabular form that shows different quantities which are being demanded at different prices. There are two types of Demand Schedules:
In economics, a demanding schedule is a table that shows the quantity that is demanded of a good or service at different price levels. A demand schedule can also be graphed as a continuous demand curve on a chart where the Y-axis represents the price and the X-axis represents the quantity.
Demand Schedules vs. Supply Schedules
A demand schedule is typically used together with a supply schedule, that shows the quantity of a good which would be supplied to the market by the producers at given price levels. By drafting these graphs, both the schedules on a chart with the axes described above, it is possible to obtain a graphical representation of the supply and the demand dynamics of a particular market.
Also, in a typical supply and demand relationship, as the price of a good or the service rises, the quantity demanded drops and falls. When all these factors are equal, the market reaches its equilibrium, there the supply and demand schedules intersect with one another. At this point, the corresponding price is the equilibrium market price, and the corresponding quantity is the equilibrium quantity that is exchanged in the market.
Additional Factors on Demand
Price not being the sole factor determines the demand for a particular product. The demand may also be affected by the amount of disposable income available, shifts in the quality of the goods in question, effective advertising, and other weather shifts.
Price changes in the related goods or services may also affect the demand. Here the price of one product rises, and the demand for a substitute may rise, also a fall in the price of a product may increase the demand for the complementary goods. For example, a rise in the price of one brand of the coffeemaker will increase the demand for a relatively cheaper coffee maker that is produced by a competitor. If the price of all coffee makers falls, the demand for coffee, which is a complement to the coffeemaker market, may rise as consumers may want to take advantage of the price declining in the coffeemakers.
Individual Demand Schedule
This is a demanding schedule that illustrates the demand of an individual customer for a commodity in relation to the price.
Let us study, by referring to an example.
The above schedule represents the individual demand schedule. Here when the price of the commodity is ₹100, its related demand is 50 units. Also, when the price is ₹500, then its demand decreases to 10 units.
So, we can conclude that as the price falls the demand increases and as the price rises the demand decreases (Vice Versa). Thus, we see there is an inverse relationship between the price and the quantity demanded.
Individual Demand Curve
Below is a graphical representation of the individual demand schedule, where the X-axis represents the demand and the Y-axis represents the price of the commodity.
(Image will be Uploaded soon)
The above demand curve shows the demand for the fuel that is Gasoline. The price of gasoline is 3.5 per litre, the demand is 50 litres and as the price is 0.5 per litre, the demand is 250 litres.
The Elasticity of Demand
Demand elasticity, also known as price elasticity of demand, is the degree to which rising prices translate into decreased demand. The demand elasticity of corn is 1 if a 50% increase in corn prices induces a 50% decrease in the amount of maize desired. The demand elasticity is 0.2 if a 50% increase in maize prices only reduces the amount desired by 10%. For items with greater elastic demand, the demand curve is shallower (near to horizontal), whereas, for products with less elastic demand, the demand curve is steeper (closer to vertical).
A new demand curve must be generated whenever a factor other than price or quantity changes. Assume that the population of a region grows, resulting in an increase in the number of mouths to feed. In this situation, even if the price remains unchanged, more maize will be requested, causing the curve in the graph below to move to the right (D2). To put it another way, demand will rise.
Demand is the economic principle that refers to a consumer's desire to purchase goods and services and its willingness to pay a price for a specific good or service. The Law of Demand states that when the price of a commodity falls, the demand increases; while other things remain constant.