Definition of demand

Published by Patrick Mutisya · 8 days ago

The Allocation of Resources – Demand

Objective: Definition of Demand

In economics, demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a given period of time, ceteris paribus (all other factors remaining unchanged).

The relationship between price and the quantity demanded is expressed by the law of demand:

\$\text{When the price of a good rises, the quantity demanded falls, and vice‑versa, assuming all other factors are constant.}\$

Key Components of Demand

  • Willingness to buy: The desire to purchase a good.

  • Ability to buy: Having sufficient income or resources to make the purchase.

  • Time period: The specific duration over which the demand is measured (e.g., per week, per month).

Demand Curve

The demand curve graphically represents the relationship between price (vertical axis) and quantity demanded (horizontal axis). It typically slopes downwards from left to right, illustrating the law of demand.

Suggested diagram: Downward‑sloping demand curve showing price on the vertical axis and quantity demanded on the horizontal axis.

Determinants of Demand

Factors other than the price of the good itself that can shift the entire demand curve are known as determinants of demand. When any of these change, the demand curve shifts either to the right (increase in demand) or to the left (decrease in demand).

DeterminantEffect on Demand
Consumer incomeHigher income → demand increases for normal goods; decreases for inferior goods.
Prices of related goodsSubstitutes: higher price of substitute → demand for the good rises.
Complements: higher price of complement → demand for the good falls.
Consumer tastes and preferencesFavourable changes → demand rises; unfavourable changes → demand falls.
Expectations of future pricesAnticipated price rise → current demand increases; anticipated price fall → current demand decreases.
Number of buyersMore buyers → demand increases; fewer buyers → demand decreases.

Movement vs. Shift

  1. Movement along the demand curve: Caused by a change in the price of the good itself, resulting in a different quantity demanded.

  2. Shift of the demand curve: Caused by changes in any of the determinants listed above, leading to a higher or lower quantity demanded at every price.

Summary

Demand is the relationship between price and the quantity of a good that consumers are both willing and able to purchase, holding all else constant. Understanding the law of demand, the shape of the demand curve, and the determinants that shift this curve is fundamental for analysing how resources are allocated in a market economy.