Demand is a consumer’s want or desire to buy a product backed by an ability to pay. If a person who earns 1000 dollars a month aspires to buy a Ferrari car, it cannot be perceived as demand as the buyer is not financially capable to buy the car. However, if a buyer who earns 100,000 dollars a month is interested in a Ferrari, then that is demand. At a macro level, demand is the number of products and services sold in a market over a time period.
Demand is the reason why industries manufacture goods and organizations offer services. Demand for a good is not constant and is subject to fluctuations and changes. For instance, the demand for umbrellas is high during summers and monsoons but not during other periods of the year.
Things Influencing Demand
The demand for an offering is determined by its price, price of competitor goods or related items that serve as complementary goods or substitutes; number of buyers in a market; period; and buyer income, preferences and expectations. When there are changes in any of them, a product’s demand could change. If a price increase/decrease significantly affects a product’s demand, the product’s price is elastic. If the price doesn’t affect demand by much, the product’s price is inelastic.
The level of elasticity is determined by a measure called price elasticity of demand. Prices usually go up when the demand is high and the supplier is not able to keep up with that demand. This inverse relationship between demand and price is referred to as the law of demand.
Price often drives or hurts the demand for a product. But it’s not the entire picture. In fact, price is only one of the attributes that determine purchase decisions of a buyer who values quality, brand equity, customer support, etc. equally, if not more than price. For instance, if two competing products are sold with different price tags and the expensive product is more superior in quality than the cheaper product, the lower price tag may not necessarily shift the tide in the less expensive item’s favor as people who value quality more would still buy the expensive item.