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What is Market Demand?

Definition: Market demand is the total amount of goods and services that all consumers are willing and able to purchase at a specific price in a marketplace. In other words, it represents how much consumers can and will buy from suppliers at a given price level in a market.

What Does Market Demand Mean?

What is the definition of market demand? Many people confuse consumer demand with consumer desire. These two concepts simply donít equate. Consumers can desire a product all they want but simply canít afford the product. Thus, they will never actually be able to purchase it.

Economic demand aims to measure the amount of individuals who want to purchase a good and can afford to purchase the good at a certain price. In other words, demand measures the amount of product that consumers are willing to purchase and able to purchase at a given price.

Keep in mind that as the price of a good changes, so does the demand. Less people are willing and able to purchase goods at higher prices; therefore, demand decreases as prices increase.

Economists and business owners use this theory to establish prices for their products.

Letís look at an example.

Example

Imagine an economist was attempting to determine the demand for a service, but they only had a few individual demand schedules and functions. Since market demand is the summation of all of the individualsí demand curves, the economist would add the functions or the results in the schedule together.

For example, if the total market size for a product was 3 people and at $30 none would purchase the product. The aggregate demand would be 0 at that price. Next at $25, the Customer X would buy 5, Customer Y wouldnít buy any, and Customer Z would buy 1. At $25, the aggregate demand would be 6 units. Once this method is used all the way to $0, the sums will be added and total marketplace demand will be found.

The same could be done using functions. Observing a demand curve and discovering the slope and the constant will determine the function. Once the functions are found for the 3 customers, they can be added to find the function of the marketplace demand. An example function is Customer A (50 -7X). To convert functions to demand schedule points, the economist can replace the variable with the price at a given point. Whether schedules or functions are used the same market demand should be found which is a valuable component to the decision-making process.

Summary Definition

Define Market Demand: Economic demand means the number of services and goods purchasers are able and willing to buy during a period.

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