DEMAND
Core Concepts
What is Demand?
In Economics, demand is more than just wanting something. It means having both the desire to buy a good or service AND the ability to pay for it, at a specific price, and within a particular period.
To have demand for a product, you need:
- Desire: You genuinely want the item.
- Ability to pay: You have the money or resources to buy it.
- Willingness to buy: You are ready to spend your money on it.
- Specific price and time: These conditions are important because demand changes.
For example, if a student wants a new laptop but cannot afford it, they have a desire, but not economic demand.
The Law of Demand
The Law of Demand describes the relationship between the price of a good and the quantity consumers are willing and able to buy. It states:
"Other things being equal (ceteris paribus), the higher the price of a commodity, the lower the quantity demanded, and the lower the price, the higher the quantity demanded."
This means that price and quantity demanded move in opposite directions. When prices fall, people usually buy more, and when prices rise, they buy less.
Consider this Demand Schedule:
| Price (₦) | Quantity Demanded |
|---|
| 100 | 10 |
| 80 | 15 |
| 60 | 20 |
| 40 | 30 |
| 20 | 45 |
Notice how as the price decreases (from ₦100 to ₦20), the quantity demanded increases (from 10 units to 45 units). This relationship is also shown visually by a Demand Curve, which slopes downwards from left to right.
Determinants of Demand (Factors Affecting Demand)
Apart from the price of the commodity itself, several other factors can influence how much of a good or service consumers demand. These are called the determinants of demand:
- Price of the Commodity: As explained by the Law of Demand, a change in price causes a movement along the demand curve.
- Income of Consumers: For most goods (called normal goods), if consumers' incomes increase, they can afford to buy more, so demand increases. If income decreases, demand usually falls.
- Taste and Preference: If a product becomes popular or is preferred by consumers (e.g., due to trends or health benefits), its demand will increase. If it goes out of fashion, demand will decrease.
- Population/Market Size: A larger population generally means more potential buyers, leading to higher overall demand for most goods and services.
- Price of Related Goods:
- Substitutes: Goods that can be used in place of each other (e.g., fufu and garri). If the price of fufu increases, consumers might buy more garri, increasing garri's demand.
- Complements: Goods that are often used together (e.g., mobile phone and data plan). If the price of mobile phones decreases, more people might buy phones, leading to increased demand for data plans.
- Future Expectations: If consumers expect the price of a good to rise in the future, they might buy more of it now to save money later, increasing current demand. The opposite is also true.
- Season/Weather: Demand for certain goods changes with the time of year or weather. For instance, demand for umbrellas increases during the rainy season, and demand for cold drinks rises during hot weather.
- Advertising: Effective advertising campaigns can create awareness and desire for a product, influencing consumer choices and increasing its demand.
Real-World Example
Consider the demand for textbooks at the beginning of a new school year. Even if the prices are relatively stable, demand for textbooks skyrockets because of the season (start of school), population (all students need books), and future expectations (students need them for their studies).
Practice/Reflection
Think about a common food item you enjoy, like bread. Besides its price, what two factors might cause you to buy more or less bread in a given week? Briefly explain your choices.
