Demand is the request to acquire something. In economics, the demand for is the total amount of a good or service that people want to acquire.
It comprises a wide range of goods and services that can be acquired at market prices, either by a specific consumer or by the total set of consumers in a given place, in order to satisfy their needs and desires.
These goods and services can encompass almost all of human production such as food, means of transport, education, leisure, medicines and much more. For this reason, almost all human beings who participate in modern life are considered as ‘plaintiffs’.
Demand is highly analyzed in the study of economics, which seeks the most efficient way to allocate resources, which are limited, to needs, which are unlimited. In theory, if the price of all things were zero, the demand would be infinite.
Determinants of demand movement
There are five types of determinants that make an increase or decrease in demand possible:
- The price:Of goods and services, it is inversely proportional to demand. Imagine that when the price of a next-generation Smartphone rises in price. When before the sale price was 100 monetary units and now there are 150 monetary units, there will be fewer people who will want or can buy it.
- The offer: The disposition of the goods and services, expressed in the existence of the company that offers the service and in what quantity. Imagine that in a market where there has been an earthquake and the harvest of an agricultural product has been spoiled. In this new situation, having less quantity of that product in the market the price will rise because there will be people willing to pay a higher price.
- Place:Virtual physical or space where these goods are offered. There is always a transport cost attributable to the sale price of that product and, which is directly proportional to the form or method of transport used. For example, the transport of products packaged in boxes is cheaper than the transport of frozen fish on the high seas, where costs are high.
- The plaintiff’s ability to pay:At this point the situation or bargaining power is key when setting a price for the good or service in question.
- Desires and needs:Both basic and secondary. In this sense, imagine that you have an urgent need to buy a product in a geographical area where it is not commercialized, necessary for the development of your daily life. You, as the plaintiff, will offer a higher purchase price (it is closely linked to point number 2).
In economics , the concept of demand is usually studied linked to ‘ supply ‘, since both must be analyzed together to determine the quantity of goods and services produced and their monetary value (see the law of supply and demand ) .
Price elasticity of demand
Demand can basically be understood as a mathematical function, through the ‘Demand Curve’, whose slope shows how it increases or decreases according to the variation in the price of the product or service. This concept is called ‘Price elasticity of demand’. Elasticity can be understood as the impact that variations in price have on the quantity demanded.
Taking into account the elasticity of the curve, we can find three types of price elasticity of demand:
- Elastic demand: This means that before a variation in the price of the good or service, the demand increases considerably in a greater proportion. For example, liquors or products considered luxury. They are tremendously elastic, imagine that the price of a sports car decreases, the demand will be increased by a greater amount.
- Inelastic demand: This means that before a variation in the price of the good or service, the demand moves in a smaller proportion. For example, products that cannot be substituted and are necessary as medicines. In this case, the fact that the price of a medicine increases – for example insulin -, demand will be very little affected because there will be people who need that product and do not find a substitute in the market.
- Unitary demand:when variations in the price of a good or service produce the same variation in the quantity demanded.
Graphical representation of the demand
Translating the supply and demand behaviors just explained to a graph, it is understood that the supply curve (S) is increasing and the demand curve (D) is decreasing.