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Demand

Demand is an economic principle that describes a consumer's or group of consumers' desire, ability, and willingness to pay for a product or service. If most people are not able to pay for a certain product or service because of its high price (ability), or they simply don't want the product or service for whatever reason (desire, willingness), demand for that product or service will be very low or nonexistent. If any of these two parts are missing demand does not exist in the marketplace. For example, most people would love to own a private jet (desire, willingness), but few can afford the high price (ability); so the market for private jets is limited to wealthy individuals or rich corporations that are both willing AND able to purchase one. Furthermore, if you can afford to buy a new flat screen TV (ability), but have no desire or willingness to do so because you already have one, then there is no demand in the marketplace.

Learning demand is easier for students than supply because you understand your role as a consumer.

  • You understand buying a good or service.
  • You understand that you are more likely to purchase a good when the price is low and less likely to purchase a good when the price is high.

This assumes that the good is characterized as a normal good. A normal good responds in a typical fashion with price and the quantity demand inversely related. The opposite of a normal good is an inferior good. Inferior goods such as bologna, rice, beans, spam, and used clothing are purchased more often when the consumer has little money. In other words, even though the consumer can only afford these less-than-desirable goods, they buy more. You may have noticed that, when the economy is suffering from a recession, more shoppers are buying products from discount stores, such as Big Lots, Family Dollar, and Walmart, than are buying products from high-end retailers like Saks 5th Avenue and Whole Foods.

As a student who is learning economics for the first time, you may think that many of the vocabulary terms present the same concept because the terms sound so much alike. This is particularly true with the Law of Demand (and in the next lesson the Law of Supply, and the lesson following that when Demand and Supply intersect to determine equilibrium). For now, you will need to study this lesson with a focus on the vocabulary terms and pay special attention to learning how to distinguish each term from the other. Then, you will eventually apply what you have learned to interpreting and creating graphs.