Demand Theory

What is 'Demand Theory'

Demand theory is a theory relating to the relationship between consumer demand for goods and services and their prices. Demand theory forms the basis for the demand curve, which relates consumer desire to the amount of goods available. As more of a good or service is available, demand drops and therefore so does the equilibrium price.


BREAKING DOWN 'Demand Theory'

Demand theory is one of the core theories of microeconomics. It aims to answer basic questions about how badly people want things, and how demand is impacted by income levels and satisfaction (utility). Based on the perceived utility of goods and services by consumers, companies adjust the supply available and the prices charged.


RELATED TERMS
  1. Accelerator Theory

    An economic theory that suggests that as demand or income increases ...
  2. General Equilibrium Theory

    General equilibrium theory studies supply and demand fundamentals ...
  3. Biased Expectations Theory

    A theory that the future value of interest rates is equal to ...
  4. Equilibrium Quantity

    The quantity of an item that will be demanded at the point of ...
  5. Market Segmentation Theory

    A modern theory pertaining to interest rates stipulating that ...
  6. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
Related Articles
  1. Economics

    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. Professionals

    The Term Structure of Interest Rates

    CFA Level 1 - The Term Structure of Interest Rates. Learn the three main theories describing the term structure of interest rates. Includes each theory's implications on the yield curve.
  3. Professionals

    General Theory

    Chapter 3 - General Theory
  4. Economics

    Economics Basics: Supply and Demand

    Investopedia explains: The Law of Demand, The Law of Supply, Supply and Demand Relationship, Equilibrium, Disequilibrium, and Shifts vs. Movement
  5. Economics

    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 ...
  6. Professionals

    Investment Theory and Portfolio Development

    Investment Theory and Portfolio Development
  7. Fundamental Analysis

    7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  8. Term

    What Is Equilibrium?

    Equilibrium is a state of balanced supply and demand.
  9. Economics

    Introduction To Supply And Demand

    Find out all about supply and demand and how it relates to your daily purchases.
  10. Mutual Funds & ETFs

    Introduction & Theory

    Introduction & Theory
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 is demand-side economics?

    Learn the basic theory of demand side economics, which emphasizes the importance of aggregate demand and supports government ... Read Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center