One of the most essential theories of economics is demand and supply. It is, probably, the mainstay of a market economy. The word ‘Demand’ indicates the amount or expanse of a product or service, which is desired by the people in a community. The demanded quantity of a productor service is the amount of the same which the buyers are willing to purchase at a certain price.The correlationor connection that exists between the price and amountdemanded is termed as the ‘demand relationship’.
The Law of Demand states that, if all factors remain constant, the higher the price of a product, the lesser will be the demand of that product among the people. In simple terms, where the price of any commodity goes up, its demand naturally goes down. The quantity of any product that is purchased at high price is less. This is because, with the increase in price, the opportunity cost of buying that product also increases. Naturally, people will tend to avoid spending money on such high-price products as that would compel them to sacrifice the consumption of some other product which maybe more valuable to them.
The demand for any product or service in the market is determined on the basis of a number of factors. Any producer or manufacturer or any other organization bringing any product or service in the market must thoroughly apprehend the connection between the demand and it’s every determinant in order to analyse and understand the market demand of such product or service.
There are a number of aspects based on which the market demand is determined. The most significant of them is the Price of the product or service. As mentioned earlier, the price of a product affects its demand hugely. The price of a product and the quantity demanded is inversely related to each other, and with an increase in price, the demand decreases.
Apart from the price factor, the following features, inter alia, have been recognised to be important market determinants for demand of a product or service:
- Income of the consumer – Another rather significant determinant for the demand of any product is the Consumer’s earning capabilities and their income. With a rise in the income, the purchasing power of a consumer rises, and thus his ability to purchase goods increases.
- Consumer’s taste and preference – This factor plays a vital role in influencing individual and market demand. Tastes and preferences are affected by various factors like lifestyle, customs, habits, change in fashions, standard of living, etc.,
- Price of related products – With an increase or decrease in price of related goods, the demand for any product is influenced.
- Population Growth – This acts as a significant factor in determining the demand of any product/service. With an increase in number of consumers, there is rise in consumption capacity, and hence an increased demand.
- Government Policies – This factor also greatly guides the demand of goods in the market. As an illustration, if any product has high tax imposed on it, its price would naturally escalate, thereby decreasing its demand.
Demand for any product oscillates because; the amount of the product that people buy largely depends on so many different things. Demand not only implies the need to have a product or service, but also the preparedness and capacity to purchase it at the price charged.