The most important question of the economy: what is demand?

Everyone needs a certain set of benefits that can satisfy his needs. For those goods and services that the consumer is not able to produce on his own, he goes to the market. At that moment, there is demand. And it is interesting that in order to understand the processes taking place on the market, it is not so much the desire to purchase goods that is important, as much as the real opportunity to do this. Every person today has an approximate idea of what demand is. But very few people realize this. For economists, the concept of demand is fundamental.

Definition

The demand refers to the need of customers for a product or service that is backed by real money.

For economists, it is also important to understand the magnitude of demand, defined as the maximum amount of good that consumers will want to buy at a given time at the market price. It is intuitively clear that this indicator is inversely related to price, in other words, the higher the cost, the less the buyers are ready to purchase, and vice versa. This relationship is called the law of demand.

The image on the graph of this pattern allows us to more clearly visualize the operation of the law and understand what demand is. Such a graph is usually called a demand curve.

The work of this law is explained by the action of two mutually complementary phenomena:

- a drop in price with an unchanged nominal income leads to the opportunity to purchase a larger quantity of goods, so demand increases, this phenomenon is called the income effect ;

- an increase in the price of a certain product leads to the fact that buyers will try to replace it with a cheaper one - this is the substitution effect.

How the demand is formed

Along with the price of the product, the formation of demand is influenced by a huge Number of factors. It can vary with the same value under the influence of:

1. Unstable preferences of consumers. The demand for goods can increase if it becomes fashionable and popular.
2. Growth in household incomes. Under the influence of this factor, the demand for ordinary goods is growing. However, there are benefits related to the lowest category, the number of their sales is inversely related to the level of income.
3. The cost of other goods. In the economy there are such concepts as interchangeable and complementary goods. Let's see in more detail what is the demand for such goods.

Interchangeable goods under certain conditions can replace each other. For example, tea and coffee, various brands of cigarettes. In the event of an increase in the price of one of these products, many buyers will prefer to use another, so the demand for it will grow.

With complementary goods, on the contrary. With an increase in the price of one of them, its consumption will decrease, which will lead to a reduction in demand for another. These goods include those that can not be used without each other. For example, a significant increase in demand for cars will lead to an increase in fuel sales.

The study of economic science invariably begins with an understanding of what demand is. Economists attribute the laws of change of this indicator to such a huge role that many scientists even characterize them as the first law of the economy.