Definition: Demand is an economic term that refers to the amount of products or services that consumers wish to purchase at any given price level. The mere desire of a consumer for a product is not demand. Demand includes the purchasing power of the consumer to acquire a given product at a given period. In other words, it’s the amount of products or services that consumers are willing and able to purchase.
What Does Demand Mean?
The factors of demand for given products or services is related to:
- The price of the good or service
- The income level
- The prices of complementary products
- The prices of substitute products
- Consumer preferences
- Consumption patterns
What is the definition of demand? It is also related to the quantity supplied, which is expected to meet demand so that demand and supply are in equilibrium.
Consumers seek utility maximization, which is the satisfaction they derive from using a given product or service for a given period while paying the lowest price. Therefore, the demand for a given product or service is determined by consumer purchasing behavior, which involves consumer preferences, intentions, and decisions.
Consumer purchasing behavior is related to consumer income and the prices of goods and services. Different income levels determine diverse quantities demanded of the same product or service, reflecting the purchasing power of consumers and the apprehended utility. Remember that just because a consumer wants a product, it doesn’t mean they are increasing the economic demand. If more low income people want to purchase a Lamborghini, it doesn’t increase the D because they don’t have the ability to purchase one.
Let’s look at an example.
Jeremy sells ice cream for $8 per pint. At this price level, he sells about $65 ice creams per week, earning $520. However, over the last two weeks, consumer demand for Jeremy’s ice cream has declined, so he decides to lower the price at $6.5 per pint. Now, the demand for ice cream increases due to the new lower price and quantity demanded almost doubles. At this price level, Jeremy sells about $120 ice creams per week, earning $780.
Jeremy could lower the price even more, to $5.5 per pint, thereby increasing demand for ice cream even more. However, the price of $6.5 per pint seems to be the point where demand and supply are in equilibrium on the demand curve. Even if more consumers were buying ice cream at the $5.5 per pint level, they would not trade off the losses between the $8 and $5.5. In other words, increasing the price per print would lower demand and profits, while lowering the price per pint further than $6.5 would not increase demand to the level of making up for the losses.
Define Demand: Economic demand means the total quantity of products and services consumers are willing and able to purchase in a market.