When we speak about demand for a product, we mean the desire to simple have or to own the product. For a demand to be counted in market place desire must be backed by the ability to pay for it. Demand is a concept specifying the different quantities of an item that will be bought at different prices.
In a market economy people and firms act in their own best interests to answer the basic WHAT, HOW, and FOR WHOM questions. Demand is central to this process, so an understanding of the concept of demand is essential if we are to understand how the economy works.
Demand for a product is influenced by the following factors:
1. Price of the commodity itself (charges or expected charges)
2. Tastes and preferences of the consumers
3. Incomes of the consumers
4. Price of the related goods, substitutes or complementary.
5. No of consumers in the market.
The concept of demand is relatively easy to understand because it involves only two variables—the price and quantity of a specific product at a given point in time. For example, we might want to know how many people want to see a movie on a given afternoon if the price was $5. Or we might want to know how many would want to view it if the price was $10.
The answers would depend on a number of things, including the number of people living in the area, the number and types of other movies that were playing at the same time, and of course the popularity of the movie itself. But in the end, everything would be measured in terms of prices and quantities.
To see how an economist would analyze demand, look at Table A in Figure 1. It shows the amount of a product that a consumer, whom we’ll call Mike, would be willing and able to purchase over a range of possible prices that go from $5 to $30.
The information in Table A is known as a demand schedule. The demand schedule shows the various quantities demanded of a particular product at all prices that might prevail in the market at a given time.
From the above table you can see that Mike won’t be buying any CDs for price of $30 or $25, but if the price is reduced t0 $20 Mike would be interested in buying one CD, if it is reduced to $15 he would then buy 3 CDs. Just like any normal individual as the price of a product is reduces he is willing to buy more quantity of it.
When the relationship between demand and price is illustrated in a graphical form it is called demand curve. The demand curve slopes downward from left to right, because as the price of a product goes up the quantity demanded decreases. The demand curve is drawn with the assumption that only the price changes while other factors remain same.
The demand schedule in Table A of can also be shown graphically as the downward-sloping line in Table B. All we have to do to is to transfer each of the price-quantity observations in the demand schedule to the graph, and then connect the points to form the curve. Economists call this the demand curve, a graph showing the quantity demanded at each and every price that might prevail in the market.
For example, point a in Table B shows that Mike purchased three CDs at a price of $15 each, while point b shows that he will buy five at a price of $10. The demand schedule and the demand curve are similar in that they both show the same information—one in the form of a table and the other in the form of a graph.