Demand

economic-dictionary

The demand is the request to acquire something. In economics, demand is the total quantity of a good or service that people want to purchase.

The meaning of demand encompasses a wide range of goods and services that can be purchased at market prices, either by a specific consumer or by the total set of consumers in a given place, in order to satisfy their needs and desires.

These goods and services can encompass practically all of human production such as food, means of transport, education, leisure, medicines and a long etcetera. For this reason, almost all human beings who participate in modern life are considered "demanding."

Demand is highly analyzed in the study of the economy, which seeks the most efficient way to allocate resources, which are limited, to needs, which are unlimited. In theory, if the price of all things were zero, the demand would be infinite. The opposite of demand (what people want to buy) is supply (what producers are willing to put up for sale).

Determinants of demand movement

There are five types of determinants that make an increase or decrease in demand possible:

  1. Price: Of the goods and services, it is inversely proportional to the demand. Imagine that when the price of a next-generation Smartphone goes up in price. When before its sale price was 100 monetary units and now it is 150 monetary units, there will be fewer people who will want or be able to buy it.
  2. Offer: The disposition of the goods and services, expressed in the existence of the company that offers the service and in what quantity. Imagine that in a market where there has been an earthquake and the harvest of an agricultural product has gone bad. In this new situation, as there is less of that product on the market, the price will rise because there will be people willing to pay a higher price.
  3. Place: Physical or virtual space where these goods are offered. There is always a transport cost attributable to the sale price of that product and, which is directly proportional to the form or method of transport used. For example, it is cheaper to transport boxed products than to transport frozen fish on the high seas, where costs are high.
  4. The claimant's ability to pay: At this point, the situation or bargaining power is key when setting a price for the good or service in question.
  5. Wants and needs: Both basic and secondary. In this sense, imagine that you have an urgent need to buy a product in a geographical area where it is not marketed, necessary for the development of your daily life. You, as a plaintiff, will offer a higher purchase price (it is closely linked to point number 2).

In economics, the concept of demand is always studied linked to 'supply', since both must be analyzed together to determine the quantity of goods and services produced and their monetary value (see the law of supply and demand). .

Demand law Demand function

Price elasticity of demand

Demand can basically be understood as a mathematical function, through the ‘Demand Curve’, whose slope shows how it increases or decreases according to the variation in the price of the product or service. This concept is called "Price elasticity of demand". Elasticity can be understood as the impact that changes in price have on the quantity demanded.

Taking into account the elasticity of the curve, we can find three types of price elasticity of demand:

  1. Elastic demand: This means that before a variation in the price of the good or service, the demand increases considerably in a greater proportion. For example, liquors or products considered luxury. They are tremendously elastic, imagine that the price of a sports car decreases, the demand will be increased by a greater amount.
  2. Inelastic demand: This means that before a variation in the price of the good or service, the demand moves in a lesser proportion. For example, products that cannot be substituted and are necessary like medicines. In this case, the fact that the price of a medicine increases, for example insulin, the demand will be very little affected because there will be people who need that product and cannot find a substitute in the market.
  3. Unit demand: When variations in the price of a good or service produce the same variation in the quantity demanded.

Graphical representation of demand

Translating the behavior of supply and demand that we have just explained to a graph, it is understood that the supply curve (S) is increasing and the demand curve (D) is decreasing.

See definition of aggregate demand Excess of demand

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