Any person needs a certain set of benefits to satisfy his needs. For those goods and services that the consumer is not able to produce on his own, he goes to the market. At this point, demand arises.
Moreover, it is interesting that in order to understand the processes occurring in the market, it is important not so much a desire to purchase a product as a real opportunity to do so. Everyone today has a rough idea of what demand is. But few are aware of this. For economists, the concept of demand is fundamental.
Definition
Demand refers to the need of customers for any product or service that is backed by real money.
For economists, the concept of demand is also important , defined as the maximum amount of good that consumers want to buy at the moment at the current market price. It is intuitively clear that this indicator is inversely related to price, in other words, the higher the cost, the less benefits consumers are willing to purchase, and vice versa. This relationship is called the law of demand.
The image on the graph of this pattern allows you to more clearly present the effect of the law and understand what demand is. This chart is usually called the demand curve.
The work of this law is explained by the action of two complementary phenomena:
- a fall in prices with a constant nominal income leads to the opportunity to purchase a larger quantity of goods, therefore, demand increases, this phenomenon is called the effect of income ;
- the increase in the price of a particular product leads to the fact that buyers will try to replace it with a cheaper one - this is a substitution effect.
How demand is formed
Along with the price of the goods, a huge influence on the formation of demand
number of factors. It can change at the same cost under the influence of:
- Unstable consumer preferences. Demand for a product can increase if it becomes fashionable and popular.
- The growth of population income. Under the influence of this factor, the demand for ordinary goods is growing. However, there are benefits related to the lower category, the number of their sales is inversely related to income.
- The cost of other goods. In the economy, such concepts as interchangeable and complementary goods are distinguished. Let us examine in more detail what is the demand for such goods.
Interchangeable products under certain conditions can replace each other. For example, tea and coffee, various brands of cigarettes. If the price of one of these products rises, many buyers will prefer to use the other, so the demand for it will increase.
With complementary benefits, vice versa. With an increase in the price of one of them, its consumption will decrease, which will entail a reduction in demand for the other. Such products include those that cannot be used without each other. For example, a significant increase in demand for cars will entail an increase in fuel sales.
The study of economics invariably begins with an understanding of what demand is. Economists assign such a huge role to the laws of change of this indicator that many scientists even characterize them as the first law of economics.