What does the law of demand imply? Answers

Demand is the amount of goods that a consumer desires and is able to purchase in a particular period. It is also called a solvent demand. Demand and the volume of purchases should be distinguished among themselves. The first is determined only by the behavior of buyers, and the second - by the activity of both consumers and sellers.

The law of demand assumes that?

The answers to this question are the essence of the concept itself. It consists in the presence of an inverse relationship between the cost of production and the need for it. In this case, all other conditions are accepted as equal. In other words, the law of demand assumes that if the price of a commodity increases, then the demand for it decreases.

What is the cause of dependence?

There are several reasons for this relationship. The law of demand suggests that the lower the cost of a product, the greater the propensity of consumers to purchase it even if they previously bought it. That is, they know the quality of this product. Accordingly, its lower cost warms up their desire to possess a well-known product. In addition, the price makes it possible to make a purchase to people who previously could not afford it. Low cost encourages customers to reduce the consumption of expensive substitute products. The first two reasons given above are referred to as the "profit effect". The law of demand assumes that when the price of the goods falls, the solvency of the population increases. The third reason mentioned above is referred to as the "substitution effect". In practice, all these factors usually act simultaneously.

Features of trade relations

The process of exchange of goods in a competitive market occurs according to certain principles. They are revealed in the specifics of the economic response of the subjects to the ratio of output and its value. The law of demand acts as one of the key rules governing the process of commodity exchange and price formation. Above it was said about the inverse relationship of the value of the product and its quantity. The law of demand assumes that the excess of supply over demand acts as a signal to the producer about the glut of the market. In this case, the sale of products is possible only with a decrease in its value. Even a slight deficit of the customary for the consumer will lead to an increase in the price.

Saturation of needs

The law of demand assumes that the excess of supply over demand comes when a certain limit of purchase increment is reached. People usually buy the same product because of a decrease in its value. But the useful effect of this has a certain limit. At its onset, even with an ongoing downward trend in cost, the quantity of the product purchased will decrease. Thus, the law of demand assumes that the excess of the volume of output causes the diminishing utility of each additional acquisition of the product of the same name. For the consumer, it is becoming increasingly obvious the decrease in the useful effect of the additional costs on them. As a result, the law of demand suggests that exceeding the supply will not increase the acquisition even if the value of the product is reduced.

Exceptions

What the law of demand implies under normal conditions will not be manifested in three cases:

1. With the turnover of some types of expensive and rare products, which act as a means of placing funds. For example, they include antiques, precious stones, gold, etc.
2. With antitrust demand, provoked by the expected price increase.
3. When switching the consumer to a better and more expensive product.

Specificity of the phenomenon

So, the law of demand assumes that the demand of the population is manifested in the market and is supported by money. At the same time, the acquirer may have a desire to receive a certain product at a particular time and in the place chosen by him. Demand is considered quite a complex phenomenon. It is formed from various elements. They are based on the law of demand. Does the consumer suppose why he buys this or that product? As a rule, a person has clear intentions regarding the products he needs. However, in essence, the law of demand involves a combination of elements that have regional, demographic, social, and economic characteristics. These elements allow you to differentiate the solvent demand by different criteria.

The importance of classification

The distribution of all that the demand law provides for solvency allows the seller to have a targeted impact on the consumer. In this case, advertising models or methods of direct impact can be used. According to observations, about a quarter of consumers are susceptible to psychological influence. These people are actively reacting to the demonstration of products in the store. This, in turn, indicates the need to optimally place the products in the display case, provide accessibility for inspection and sampling. Of no small importance will be the colorfulness and originality of the exposition, its informativeness.

Place of purchase

It is one of the signs of differentiation and is of interest to companies that carry out regional marketing. In a certain part, the mobile solvent demand is considered recreational. It is connected with resort trips. What the law of demand implies is of particular importance for firms that provide services to tourists. For them, not only the size of the mobile solvent demand is important, but also its geography, routes. At the same time, territorial differentiation is important for municipal and regional authorities. They allow it to establish control over the consumer market and develop its own policy within its limits.

Other criteria

An analysis of all that the law of demand on the level of satisfaction implies, allows the organization to adjust service and assortment policies, to identify additional reserves to ensure sales growth. To monitor and predict the solvent demand, a time indicator of the formation and presentation of it on the market is used. So, the past is called demand, which is realized or not satisfied for the previous period. Its evaluation is important in identifying trends and implementing implementation plans. Current is called the demand that exists at the moment. Knowledge of its size makes it possible to promptly adjust the planned marketing work. It is a market element in the market. The future is called demand for the coming period. It is extremely important for the enterprise to forecast its volume and structure, depending on its production capabilities and market needs. Separation of solvent demand on the above characteristics allows you to orient marketing activities to use a certain commodity and price policy, to choose the optimal strategy for conducting competition. In addition, the classification allows you to organize targeted advertising campaigns, to conduct multi-parameter market segmentation. All this requires the company to conduct appropriate differentiated actions, activities that regulate demand.

Factors of change in the solvent demand: general information

Pricing in market conditions is a multidimensional process. In it, the exchange of products is affected not only by the cost, but also by other factors that are not related to it. Their influence in some way neutralizes the price action. As practice shows, in some cases, changes in the number of purchased products occur at an unchanged cost, and in a number of situations - regardless of its movement.

Consumers' funds

The law of demand assumes that if the incomes of buyers increase, the number of purchased products will also become large, despite the fact that their value has not changed. In this situation, the deterrent is the amount of funds that the consumer controls. Before increasing his income, he could not have the opportunity to purchase a particular product. Together with this, if the financial state of the consumer deteriorates, then with a constant value of products, the number of purchases will be less.

Consumer expectations

This is another factor that can affect the change in the amount of purchased goods at the same price. Consumer expectations, in turn, are influenced by various circumstances. They can be affected by both economic factors (inflation, for example), and non-economic (seasonal, climatic, pre-holiday conditions, and so on). With their influence, the amount of goods purchased can both increase and decrease, regardless of the level at which prices are located.

Availability of interchangeable and mutually complementary products

This is also an important factor that influences the change in the volume of many goods purchased by the population. To complementary products of the consumer market include, for example, sugar and other products purchased for tea or coffee. Virtually every product has its own substitutes or complementary products. Their presence in the consumer market can often significantly change the solvent demand.

Other factors

The demand can be affected by subjective preferences, tastes of customers, their attitude to the design of products, fashion. Of no small importance is the competition of consumers, especially their psychology. For example, the "crowd effect" often works - people tend to purchase the product that is in demand with the majority. Strengthening the solvent demand may be due to an increase in the number of consumers. For example, with the increase in the birth rate, there is a growing demand for goods for children.