Theory of Demand

Demand and supply are the vastest topics of discussion in economics. Demand economics itself is an interesting and gripping subject to study. It may seem difficult to beginners, but the article contains an easy concept to grasp the theory of demand and supply. 

According to economics, demand refers to the amount of commodity desired by the consumer at a particular price range, assuming all other factors as constant. 

Supply means several goods and services available in the market to be sold at a special price. The theory of demand and supply plays a role in determining the market trend by companies, small to large both.

What is demand in economics?

As stated above, demand refers to the number of goods or services desired by a consumer at a particular price considering other factors at constant. Goods and services desired by a single consumer or bulk consumption count under demand economics.

Demand and supply are the root factor in deciding the production of goods and services for market consumption. Demand economics is affected by price fluctuation and many other factors that keep developing in the marketplace. 

The law of demand states the inverse relationship among the factors of economics known as supply and demand economics. The law says that even a consumer is the market’s regulator and changes the dynamics of the demand curve. When the price increases, demand falls, and consumers buy less or do not buy the commodity and vice-versa.

What are the demand curve and elasticity?

The graphical representation of the quantity desired and price of goods at a given period is called the demand curve, and the movement in the graph from left to right or downwards states the law of demand. In demand economics, the price appears on the x-axis, and the quantity appears on the graph’s y-axis. Price is an independent aspect; quantity is a dependent aspect.

There is an expectation of demand economics: Giffen goods; these goods do not have a substitute. So, if the price rises, consumers also buy these goods daily.

Demand elasticity refers to when the price rise results in a significant fall in demand. According to demand economics, the elasticity is connected to the demand curve, and it gets steeper for a commodity with less elasticity and shallower for products with more elasticity.

Explain the theory of demand and supply?

In economics, the theory of demand and supply is counted among the most important concepts. Demand and supply are directly or indirectly connected and affect the market in various ways. 

In demand economics, the price of a commodity desired by an individual or the mass population decides the demand in the market. Every company analyses and confirms the number of goods and services that will go into the market and supply accordingly. 

The commodity price rises when it is found less in the market, whereas when the supply rises of a commodity, the price decreases automatically. This concept is spreading roots in modern demand economics.

The theory of demand and supply helps a company attract investors, scale bigger and become a competition in the market. It helps companies test their product and analyse the marketplace’s demand, produce, and supply. It secures huge losses and creates a path to profitability in the field.

What are the factors that affect demand?

In the marketplace, several factors affect demand economics. Let us read about the factors in brief:-

• Price

There is a direct relationship between the price and demand of a commodity. When the price rises, the consumer buys less quality of a product or does not buy and when the price decreases, they buy a little more than usual. So price is one factor that decides the supply as well.

• Product availability

If the product availability or supply is less than the demand, it will affect the price. Price changes the dynamics of the selling graph of goods and services and affects the demand economy.

• Consumer demand

The demand for a particular commodity by a consumer of mass desire changes the demand cycle. It may cause a burst in demand and a rapid increase in supply. 

• Taste and preference

Taste and preference are the most unpredictable phenomena of demand economics. Taste or fashion changes overnight, and it is super risky for some sectors and affects the demand.

Conclusion

The article above has covered demand economics and the theory of demand and supply. The factors affecting demand and supply affect the consumers and market directly or indirectly related to the price of a commodity. 

Demand curve and elasticity are also explained along with the downward and upward movement of the curve in graphical representation. Place price & quantity on the x and y-axis about dependent and independent variables.

The concept of Giffen goods as an exception in the demand curve is described along with a steeper and swollen curve due to price elasticity. The article has summarised the overview theory of demand.