Demand (economics)

In economics, demand is the utility for a goods or service of an economic agent, relative to his/her income. (Note: This distinguishes "demand" from "quantity demanded", where demand is a listing or graphing of quantity demanded at each possible price. In contrast to demand, quantity demanded is the exact quantity demanded at a certain price. Changing the actual price will change the quantity demanded, but it will not change the demand, because demand is a listing of quantities that would be bought at various prices, not just the actual price.)

Demand is a buyer's willingness and ability to pay a price for a specific quantity of a good or service. Demand refers to how much (quantity) of a product or service is desired by buyers at various prices. The quantity demanded is the amount of a product people are willing or able to buy at a certain price; the relationship between price and quantity demanded is known as the demand. (see also supply and demand). The term demand signifies the ability and willingness to buy a particular commodity at a given point of time, assuming other variables remain constant. Utility preferences and choices underlying demand can be represented as functions of cost, benefit, odds and other variables.

Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the more common factors are:

The demand equation is the mathematical expression of the relationship between the quantity of a good demanded and those factors that affect the willingness and ability of a consumer to buy the good. For example, Q_d = f(P; P_rg, Y) is a demand equation where Q_d is the quantity of a good demanded, P is the price of the good, P_rg is the price of a related good, and Y is income; the function on the right side of the equation is called the demand function. The semi-colon in the list of arguments in the demand function means that the variables to the right are being held constant as one plots the demand curve in (quantity, price) space. A simple example of a demand equation is Q_d = 325 - P - 30P_rg + 1.4Y. Here 325 is the repository of all relevant non-specified factors that affect demand for the product. P is the price of the good. The coefficient is negative in accordance with the law of demand. The related good may be either a complement or a substitute. If a complement, the coefficient of its price would be negative as in this example. If a substitute, the coefficient of its price would be positive. Income, Y, has a positive coefficient indicating that the good is a normal good. If the coefficient was negative the good in question would be an inferior good meaning that the demand for the good would fall as the consumer's income increased. Specifying values for the non price determinants, P_rg = 4.00 and Y = 50, results in the demand equation Q = 325 - P - 30(4) +1.4(50) or Q = 275 - P. If income were to increase to 55 the new demand equation would be Q = 282 - P. Graphically this change in a non price determinant of demand would be reflected in an outward shift of the demand function caused by a change in the x intercept.

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