Loading the player...

What is 'Demand'

Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa.

Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants.

BREAKING DOWN 'Demand'

Businesses often spend a considerable amount of money to determine the amount of demand the public has for their products and services. Incorrect estimations either result in money left on the table if demand is underestimated or losses if demand is overestimated.

Demand is closely related to supply. While consumers try to pay the lowest prices they can for goods and services, suppliers try to maximize profits. If suppliers charge too much, demand drops and suppliers do not sell enough product to earn sufficient profits. If suppliers charge too little, demand increases but lower prices may not cover suppliers’ costs or allow for profits. Some factors affecting demand include the appeal of a good or service, the availability of competing goods, the availability of financing and the perceived availability of a good or service.

Aggregate Demand vs. Individual Demand

Every consumer faces a different set of circumstances. The factors she faces vary in type and degree. The extent to which these factors affect market demand overall is different from the way they affect the demand of a particular individual. Aggregate demand refers to the overall or average demand of many market participants. Individual demand refers to the demand of a particular consumer. For example, a particular consumer’s demand for a product is strongly influenced by her personal income. However, her personal income does not significantly affect aggregate demand in a large economy.

Supply and Demand Curves

Supply and demand factors are unique for a given product or service. These factors are often summed up in demand and supply profiles plotted as slopes on a graph. On such a graph, the vertical axis denotes the price, while the horizontal axis denotes the quantity demanded or supplied. A demand profile slopes downward, from left to right. As prices increase, consumers demand less of a good or service. A supply curve slopes upward. As prices increase, suppliers provide less of a good or service.

Market Equilibrium

The point where supply and demand curves intersect represents the market clearing or market equilibrium price. An increase in demand shifts the demand curve to the right. The curves intersect at a higher price and consumers pay more for the product. Equilibrium prices typically remain in a state of flux for most goods and services because factors affecting supply and demand are always changing. Free, competitive markets tend to push prices toward market equilibrium.

RELATED TERMS
  1. Demand Theory

    A theory relating to the relationship between consumer demand ...
  2. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
  3. Demand Schedule

    In economics, the demand schedule is a table of the quantity ...
  4. Quantity Demanded

    A term used in economics to describe the total amount of goods ...
  5. Law Of Demand

    A microeconomic law that states that, all other factors being ...
  6. Equilibrium Quantity

    The quantity of an item that will be demanded at the point of ...
Related Articles
  1. Insights

    Law of Demand

    The law of demand is one of the most fundamental principles in microeconomics. It's all about how price affects demand. According to the law of demand, for all other things remaining constant, ...
  2. Investing

    What Is Supply?

    Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.
  3. Insights

    What Is Equilibrium?

    Equilibrium is a state of balanced supply and demand.
  4. Insights

    What is Demand?

    Demand is the economic term for the cumulative wants and desires of consumers as they relate to a particular good or service. Generally speaking, if all other factors remain constant, as demand ...
  5. Insights

    What's Aggregate Demand?

    Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.
  6. Insights

    Explaining Quantity Demanded

    Quantity demanded describes the total amount of goods or services that consumers demand at any given point in time.
  7. Insights

    Introduction To Supply And Demand

    Find out all about supply and demand and how it relates to your daily purchases.
  8. Insights

    What is Supply & Demand?

    The law of supply and demand is one of the most basic principles in economics. In simplest terms, the law of supply and demand states that when an item is scarce, but many people want it, the ...
  9. Investing

    Why You Can't Influence Gas Prices

    Don't believe the water-cooler talk. Big oil companies aren't to blame for high prices.
RELATED FAQS
  1. How does the law of supply and demand affect prices?

    Learn what the law of supply and demand is, what relationship it has with prices, and how the law of supply and demand affects ... Read Answer >>
  2. Is demand or supply more important to the economy?

    Learn more about the impact of supply and demand in an economy. Find out why companies study supply and demand as part of ... Read Answer >>
  3. What's the difference between regular supply and demand and aggregate supply and ...

    Understand how businesses use supply and demand and aggregate supply and demand to forecast economic activity. Learn about ... Read Answer >>
  4. Do supply and demand always cancel each other out?

    Learn more about supply and demand and how these factors drive economic activity. Find out more about demand elasticity and ... Read Answer >>
  5. Are there any exceptions to the law of demand?

    Learn more about the law of demand and if exceptions exist for different products. Find out more about how price elasticity ... Read Answer >>
  6. How does aggregate demand affect price level?

    Read about the relationship between aggregate demand and the general price level, and learn why it is difficult to determine ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center