What is Demand

by Investing School on April 8, 2010

Demand is a term used in economics to describe the desire of a consumer, or a group of consumers, to purchase a particular good or service at a certain price. To chart demand there is a graph called a demand curve that displays the demand for certain products and services at particular price points. The demand curve is usually characterized by a downward slope. This is because most consumers will want to purchase more goods when the price is lower.

As just described, you see that price has an impact on demand. As prices decrease, demand usually increases. And, the reverse is true. Generally, if the price increases then consumers may take a second thought about purchasing a particular item. For example, if a farmer is in need of replacing a piece of farm equipment but the price is too high for the item he wants, he may choose to repair the existing equipment rather than replace it.

There are other factors that can affect demand. The price of goods that are similar or related to the product in demand can have an affect. For example, French fries and ketchup usually are thought of complementary items. If the price of French fries stays the same but the price of ketchup increases then there is a high likelihood that the demand for French fries will go down.

Another important factor to consider is the income level of the consumer. It has been shown that consumers with more disposable income are more likely to purchase goods in demand.

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