The Concept of Demand

TheConcept of Demand

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TheConcept of Demand

Theconcept of demand is an economic principle that explains thewillingness and ability of the consumers to go out there and purchasea particular product or services at a particular price within a givenperiod of time (Mankiw, 2007). A particular person’s demand istheir individual willingness and ability to purchase a good or aservice at a particular price on the other hand the market demand isthe overall willingness and ability of all the people in the marketto purchase a certain product (Sullivan &amp Steven, 2003). Theconcept of demand is a very important area of study in economics asit helps both the suppliers and the buyers of a certain product toestimate the market price. It also helps producers to determine howmuch of their product is needed in the market so that they can avoidproducing too much surplus (Mankiw, 2007).

Priceis the primary factor that affects demand (Sullivan &amp Steven,2003). With all factors held constant, the demand for a particularproduct is said to increase with a decrease in the price of thatparticular good. In other words, consumers are willing to purchase aproduct more when it has a lower price more than when it has a higherprice. This means that more people will be capable of buying aproduct if the sellers decided to lower its price. Demand is usuallyrecorded by economists on a demand schedule and later plotted on agraph (Sullivan &amp Steven, 2003).

TheDemand Schedule

Ademand schedule is a table that shows the different quantities of aparticular product that the consumers are willing to purchase at aparticular price within a particular period of time (Mankiw, 2007).For example, the following is a demand schedule showing the demandfor milk in a particular neighborhood within one month.

Price of Milk

Quantity of Milk Demanded

10

50

20

40

30

30

40

20

50

10

Fromthe above demand schedule, it is clear that the quantity of milk thatpeople are willing and able to purchase is decreasing as the price ofmilk is increasing.

TheDemand Curve

Ademand curve is a graph showing the relationship between the priceand the quantity demanded of a particular good or service. Thefollowing is a demand curve showing the relationship between theprice and the quantity demanded of milk as represented in the demandschedule above.

Fromthe above graph, one can clearly see that the quantity demanded ofmilk is inversely proportional to the price of milk. This makes thedemand curve of milk to slope downwards from left to right. Thedemand curve of any particular commodity also has the sameproperties.

TheLaw of Demand

Thelaw of demand states that the quantity demanded and the price of acertain product are inversely proportional ceteris paribus (Sullivan&amp Steven, 2003). This implies that all other factors heldconstant, as the price of a certain commodity increases, the quantitydemanded of that commodity decreases. Consequently, when the price ofthat commodity decreases, the demand for that commodity will in turnincrease (Mankiw, 2007). The factors that are being held constant inthis case are the other factors that affect demand other than itsprice. These include things like the income of the consumer, thetastes and preferences of the consumer, expectations in future pricechanges and the prices of substitutes (Sullivan &amp Steven, 2003).

However,there are some exceptions to this law. For example, when the goodsare inferior or giffen, their demand is said to rise as the pricesrise and vice versa. These are goods of very poor quality that whentheir prices increase, people assume that their quality has alsoincreased, hence their demand will increase (Sullivan &amp Steven,2003). Other things like changes in fashion, goods that are tooessential, and the expectations of the future price changes canaffect the behavior of the demand curve (Mankiw, 2007).

Conclusion

Fromthis essay, it is clear that demand is a very important topic ineconomics and finance. Without the concept of demand it will bedifficult to estimate the market prices, hence there will not beconsistent when carrying out transactions. This concept is bothimportant for the buyers and the sellers because it helps them tounderstand the market price mechanisms. This is because this concepttogether with the concept of supply is responsible for determiningthe market prices (Mankiw, 2007).

References

Mankiw,G., (2007). Principlesof Economics.South-Western Cengage Learning. p.&nbsp470

Sullivan,A. &amp Steven, M. S., (2003). EconomicsPrinciples in Action. UpperSaddle River, New Jersey: Pearson Prentice Hall. p.552

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