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What is Demand (in Economics)
Demand is a term of economic theory. Demand is the quantity of goods or resources in the market that the buyer (customer) is willing to buy at a specified price at a certain time and a certain place.

Demand is a term of economic theory. Demand is the quantity of goods or resources in the market that the buyer (customer) is willing to buy at a specified price at a certain time and a certain place. Demand in the market interferes with the supply. Demand is created in the market for services, goods, commodities, finance, and also in the labor market. Sensitivity of customers to price changes is referred to as elasticity of demand.

Economic theory distinguishes these types of demand:

  • Aggregate Demand - the sum of all planned purchases in the economy. It is intended by volume of products and services that buyers want to buy and the level of prices at which they are willing to pay.
  • Individual Demand - the volume of planned purchases and prices, which is the only buyer willing to pay or the volume of production of the sole producer, and prices that buyers are willing to pay
  • Market Demand - the volume of planned purchases and prices of the only product or service, and prices that buyers are willing to pay in the market

Demand is graphically described by demand curve. This is plotted in the graph as follows:

Demand Curve graph

On the horizontal axis there is intercepted quantity demanded of the product (good, resource) (Q) and on the vertical axis there is captured its price (P). The demand curve (D) does not have a random shape. It decreases towards the bottom right. It corresponds to the law of falling demand - with decreasing price, the quantity demanded increases. Cheaper goods are more attractive to buyers and within their budgetary constraint they may buy more. Another explanation for the shape of the demand curve is the law of diminishing marginal utility.

On the demand side the competition between buyers occurs. Each tries to get a product for himself that it is willing to pay a higher price for a product than others.

Demand in interaction with supply forms the market.

Demand in practice: Demand for products (goods or services) or resources determines the size of the market, where the supply of companies or individuals can be used. Knowing the demand for a good in the market is one of the essential information with which every business must operate. On the demand can be either reacted passively or in contrary actively created (see marketing business concept, Blue Ocean Strategy). Demand for products, as well as supply affects behavior in the market in all directions - it affects the product portfolio, the entire lifecycle of products and services, speed of innovation, the way of promotion, marketing and pricing. Where there is no real demand, the company can hardly something offer.

Enterprises find demand using various forms of market research and personal knowledge of their merchants. Recently, it is often applied the use of social networks and influencing demand through these new media. The ability to correctly estimate the current and especially future demand in the market must be one of the basic skills of sales manager (CSO).

On the other hand, every organization is on the demand side (i.e. in the role of the customer) to the resources that it needs for its operation and that looks for. In the knowledge economy there is a key demand for quality human resources. It is created by the need of the organization to meet its strategy and work places which needs for its functioning. It thus looks in the market for suitable professions and profiles of people which needs to operate.

In the same way, it looks for financial resources in the financial markets, and other resources and services (e.g. telecommunications, finance, IT services, to fulfill its function.

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Last update: 20.08.2015

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