Demand is the amount of a good or service buyers are willing to purchase at a given price over a defined time period.
The demand for a product represents the buyer’s perspective. It is the number of items people are willing to purchase at different prices. Generally, people purchase fewer of a given item as the price increases. The law of demand states that—other things being equal—as a good’s price increases, there is a decrease in the quantity demanded for that good. For example, assume it is winter in Madison, Wisconsin, where temperatures can remain well below freezing for many consecutive days. What do you think the demand for a winter trip to a tropical location, such as Hawaii, would be in Madison? Naturally, almost everyone would want to go if the price is very low. However, when the price is considered, most people opt to stay at home or take a less expensive vacation.
A change in the price of a good or service results in a change in the quantity demanded for the good or service and is illustrated by movement along the demand curve. For example, the demand curve for babysitting in the Oak Grove community is shown below. At $7.00 per hour residents would demand 32,000 hours per month, but at $5.00 per hour the quantity demanded would increase to 45,000 hours.
Each of us has a demand for every good or service. It may be zero if we would not purchase it at any price. The sum of all of our individual demands equal the market demand. Many variables influence our individual demands. These include our income, the price of related goods such as substitutes and complements, future expectations, and our tastes. Companies strive to increase the demand for their product by advertising. The number of potential buyers also affects the market demand.
A good or service's demand and supply determine its market price and quantity produced.
Demand – The Consumer's Perspective
Supply and Demand – Producers and Consumers Reach Agreement
Changes in Demand – When Consumer Tastes Change
Price Elasticity of Demand – How Consumers Respond to Price Changes
Supply and Demand – The Costs and Benefits of Price Controls
Managing Supply Using Tariffs, Subsidies, Quotas & Licenses
Understand a Stock's Performance Using Supply and Demand