What Is Demand In Economics And Factors Influencing It With Examples?
Demand in economics refers to consumers desire to purchase certain goods and services and their ability and willingness to pay the price for the demanded goods or services.
What is demand dependent on?
Demand made by consumers is dependent on their needs and wants and their ability to pay for the demanded product or service.
Consumers ability to pay – demand for certain goods or service fluctuate as and when the prices of such goods or services escalate or deflate. If the price of certain goods or services increases and the consumer is unable to pay for it, the consumer generally finds a cheaper substitute, therefore, resulting in the decrease of the demand for such goods or services.
The demand for certain goods and services are also based on the preferences and choices of the consumers and their financial status and its these preferences, choices and taste of the consumers that are called as demand for the specific goods or service thereby resulting in the production of the demanded goods or service.
Factors Influencing Demand–
Income –
The demand of a commodity/product depends on the amount of income earned by the consumers. The more the income of the consumers, the more they would demand.
On an individual basis, consumers who have higher incomes won’t necessarily purchase more of the same commodity or product. For example- a consumer who has the ability to pay for an expensive washing machine won’t keep buying them just because they are capable of affording it. This is called the marginal utility principle which means that a product loses its usefulness at a certain price level and quantity.
Expectations –
Consumers will purchase more of something if they suspect the value of certain goods or services will increase in the future. For example – gold, property, stocks.
Price –
Demand and price go hand-in-hand. When the prices rise up the demand goes down and vice versa.
Substitutes–
Consumers usually tend to switch onto substitutes of the products whose prices escalate thereby increasing the demand of the substitute product and decreasing the demand of the product that was their first choice.
Consumers choices and preferences –
Consumers buy things based on their choices and preferences and their lifestyle. For example- people who are concerned about the animals would opt for cruelty-free products thereby increasing the demand for cruelty-free products.
The size of the market –
When there are more buyers available in the market, the overall demand for the product increases. For example – if more people are able to afford boats, the market size and demand for boats will rise up. On the contrary, if there are fewer people who have the ability to afford a boat, the market price and demand for the boats will decrease.
ALSO READ- What Is Supply In Economics And How Is Price Of A Product Determined?
