Meaning and Determinants of Demand

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What is Demand?

Demand relates to the willingness and potential of consumers to obtain a provided quantity of a good or service in any given point of time or over a duration in time. Also, in economics, the term means that the consumer has the pressing need, promoted by the ability to pay from an income. Income brings about a purchasing power that they practise in the market through effective demand. Economic demand is something that runs the commerce. With no economic demand, companies would no longer be willing to supply products as they wouldn't be making any profit by entering the market. 

What a buyer pays to purchase a certain good is termed as price. Further, the total number of units purchased at that price is said to be the quantity demanded. The price is usually inversely proportional to the quantity demanded, i.e. when the price of any service or good increases, the quantity demanded deliberately decreases. Similarly, when the price of the good falls, the quantity demanded hikes up. Economists confidently pronounce this inverse relationship between price and quantity demanded as the law of demand. However, external factors govern economic demand; that's where determinants come into the play.  Since now we know what demand is, let's discuss the demand analysis meaning types and determinants of demand.

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Types of Determinants of Demand 

Every factor has a unique impact on demand. We need to understand the meaning of determinants and types of demand. The following are the few determinants of demand. 

Price of the Product

Price is used as a parameter by the people to decide if all the other factors remain constant or equal. According to the law of demand, the decrease in the demand follows an increase in the price and an increase in the demand follows a reduction in price. 

The Income of the Consumers

If the income rises, the number of goods demanded by the consumers also increases. Meanwhile, a drop in income leads to lower consumption levels. Thus the relationship between the demand and the income is not direct. 

Number of Buyers in the Market

The number of consumers plays a vital role in net/total demands. When the number increases, the demand also increases.

Substitute Product

In this case, when the price of one product increases, the demand for another product rises. Now that we understand the meaning of demand and its determinants, let's discuss the types of demand. 

Types of Demand

We have already discussed what demand is. Now let's read about the types of demand. Corporations often put a large sum of their budget in comprehending the consumer's demand for their products. This facilitates them to drag their products to customers without losing any capital in any undesirable factors such as the overproduction. Inferring what kind of demand your firm falls under is a fair business practice. Therefore let's take a glance at different types of economic demands. 

Individual and Market Demand 

Market demand is also known as aggregate demand. It refers to the total economic demand in view of all the individual demand in any particular market. Individual demand is a demand for a product by an individual at a certain price. Customer tastes, distinguished quality and brand commitment or loyalty affect individual demand.

Short-term and Long-term Demand 

As the name implies, short-term demand is limited for a brief duration of time; it reflects trends, necessity and modifications in the price more dramatically than the long-term demand. For example, winter wear is worn only during winter, making the demand much shorter when compared to clothing worn all over the year. On the other hand, long-term demands pertain for a longer period of time and this demand doesn't change with respect to time and price. 

Company and Industry Demand 

The demand for products at a specific price over a span of time from a sole element is known as company demand. Industry demand includes the total aggregate demand for an industry's products. Company demand is often written in terms of the percentage of industry demand. For example, the demand for Coca-Cola is the company demand, and it makes up the percentage of total industry demand. 

Did You Know?

This Covid-19 pandemic has led to phenomenal catastrophes distinguished by immense job losses on a global scale. In the US, more than 20.5 million people lost their jobs just a few months ago. It has precisely resulted in vast economic distress, leading to excessive layoffs that have influenced a great impact on people of all races, backgrounds and classes. Therefore, the US condoned a staggering and record-breaking 14.7% rate of unemployment.

FAQ (Frequently Asked Questions)

Q1. What Role Does Economic Demand Play in Job Placements?

Ans: The reason why individuals have a job is because of economic demand. In case someone works in finance, economics or accounting, individuals can excel better in business by understanding economic demands. It also assists in forecasting how much of a good or service to produce or when it’s fortunate to scale back production. This could help individuals save money in long-term and short-term, increasing money flows. Moreover, to determine economic demand is one of the primary expenditures of companies and businesses. Also, depending on the demand for skills, companies hire people who possess the skill. If the skills are not in demand in the market, then jobs which require that skill also decreases.

Q2. What Determinant Role Do Consumer's Expectation and Complementary Products Play?

Ans: As per the consumer's expectations, if there is a decrease in the prices of goods or an increase in the income of an individual, it will automatically result in an increase in the demanded quantity. Likewise, the increase in the prices of goods or expecting a lower income will result in a decrease in the quantity that is demanded. In the case of a complementary product, if one product determines the sale of the other product, the products are said to be complimenting each other. Hence, if the price of any one of the products increases or decreases, it will surely affect the demand of the other product as well.