Theory Of Topic - Concept Of Demand
Demand refers to the quantity of goods and services which the consumers are willing to buy at a given price at a point of time. Demand as a concept is very vast and carries many more factors than its definition alone. If all the other factors are kept constant, an increase in demand leads to an increase in the prices of the goods and services demanded.
Demand can be individual. In economics, the concept of demand that we study is called market demand, as it is the sum total of individual demand in the market as individual demand would not be able to drive any conclusions.
Demand is what drives production as the goods and services that are in demand are required to be produced as per their demand and prices are also set in accordance to it. Demand is very closely related to supply. The forces of demand and supply drive any economy.
The consumers want to pay the lowest price. The producers want to earn the maximum profit. If the producers or suppliers charge a high price, people would not be able to afford the goods and services and thus, the demand drops. Thus, the producers set their prices in accordance to demand. In the contrast, if people are not willing to pay a decent amount to the suppliers, they will not be able to cover their cost of production and hence, the prices do not drop to an extreme. This is what is called market equilibrium which happens when the forces of demand and supply meet and strike a price at the intersection which is suitable for both the producers and the consumers.
Demand is influenced by the income of that market. Other factors which affect the demand are the quality of goods and services, nature of goods and services, advertising etc.
Income changes can cause shifts in the demand curve. Demand curve is a downward sloping curve which shows that there is a negative correlation between prices of goods and services and the quantity demanded. The higher the price, the lower the demand for that goods and services. This is called the law of demand which is applied globally for any type of economic analysis.
Demand and aggregate demand are similar yet quite different from each other. Aggregate demand is the demand of an economy as a whole during a financial year while demand can be calculated for any period of time.
There are different determinants of demand other than price and income which can cause a change and which determines demand of a market. These determinants include taste and preferences of consumers. The prevailing fashion and choices of consumers differs from time to time affecting the demand. Some products lose their popularity and become obsolete. With the advancements in technology, demand patterns have changed a lot with people shifting their purchase to latest products and do not demand products with poor or outdated technology.
Problems Encountered In Solutions To Concept Of Demand
The demand concepts are difficult to understand because it takes into consideration multiple factors which may be outside the control of the market. Determinants of demand and consumer behavior cannot be considered absolute as they keep changing. The law of demand sounds simple but is subject to many clarifications.
The problems which are related to the concepts of demand often require drawing of a graph which again is a tedious concept as graphical representation of data is easy but requires a lot of patience, time and efforts. Students often seem to make tiny mistakes in this and thus, they have to keep doing the same thing again and again till they get it right.
Demand problems are subject to change in income also which requires calculations when doing problems which include shifts in the demand curve. The shifts are presented graphically and require an analysis to be done after the graphs have been drawn. There are many formats which are needed to be followed while doing the analysis. All the axes need to be explained. Each point on the graph has an explanation showing its importance and observations. All this makes the problems of demand very difficult for the students and challenging to solve.
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