Demand An Introduction

When we go to the market we see that every commodity has a price tag, some goods are cheaper and some are very expensive. Have you ever thought of why these commodities are sold for a price ???

The immediate answer that can come to your mind would be because it’s useful to us so we pay a price to acquire it. But if this is so, than why air, rain and sunlight do not have a price? 

They are also very useful to us. This is so because they are unlimited or free goods (goods like air which are gift of nature, are known as ‘free goods’ and they do not have a price).

So we can now say that since goods are useful and scarce, they have a price, these are called economic goods.But usefulness and scarcity are only the underlying forces.

Usefulness expresses itself in the form of demand by buyers, and scarcity expresses itself in the form of supply by the sellers. Therefore, prices of goods and services in a free enterprise economy are determined by the interaction of forces of demand and supply.

Demand and Supply are the two important tools of economic analysis.

Meaning of Demand

Demand for any commodity refers to the amount of that commodity that will be purchased, i.e., the amount which consumers are willing and able to purchase at a particular price during a particular period of time.

Some points should be noted in the above definition of demand:

1. Demand in economics is not the same thing as desire for it. It means both the willingness and adequate purchasing power to buy it, that give rise to demand. Demand is an ‘effective desire’.

Desire + will to purchase + ability to purchase   =    Effective demand

For example, I may have the desire for a house but it will become demand only when I have the adequate money and I am willing to spend that money to purchase that house.

2. Demand is always at a price. For example you are willing to purchase a pen if it is available at Rs.10, but you may not buy if it is priced at Rs.100. Moreover different quantities of a commodity will be demanded at different prices. Therefore, demand is always expressed in relation to a particular price.

3. Demand is always expressed with reference to a particular time period. Demand is a flow concept. Flow is any variable which is expressed per unit of time. For ex. demand for a car is 200 per day/week/year. If we say that demand for a car is 200, it is an incomplete statement and also meaningless.