Demand Definition & Factors Affecting It

BANKING & FINANCE, ACTIVELYSHARE.COM — The desire to get an item or service in order to fulfill a need is referred to as demand.

Demand is the level of customer desire to buy a product or service provided by the seller

Usually, high demand will affect product prices. Conversely, low demand will also make product prices lower (re: unsold).

What Is Demand Definition?

Demand is the quantity of certain goods and services demanded (purchased) at various possible price levels and within a certain time.

Demand can be created when buyers have the desire to buy goods and services accompanied by the ability to pay for them.

So demand can be interpreted as a process to ask for something or ask for goods in a certain amount, which will be purchased or requested at a certain price and time.

Demand is closely related to consumer desires for goods and services to be fulfilled. Consumer demand for goods and services is unlimited.

Please to also read What Is Supply Is And Its Relation To Demand

Factors Affecting Demand

In practice, the desire of individuals or society towards a product or service is influenced by several factors.

It turns out that the demand does not stand alone. Many factors affect the emergence of demand. Let’s see the following explanation. Here are the details.

Prices Of Substituting Goods And Complementary Goods

The demand for an item can be influenced by the price of other related goods, such as substitutes and complementary goods.

Consumer Income

The income of consumers (as buyers) is a very important factor in determining the demand for various types of goods. When consumer income increases, it means that purchasing power also increases.

Total Population

The increase in population clearly increases the number of goods consumed, but the proportion will depend on the increase in employment opportunities.

When the increase in population is accompanied by an increase in job opportunities, then more people will receive income, so that the purchasing power of society will increase.

Increasing the purchasing power of society means that it will increase the demand for goods or services.

Consumer Tastes

Consumer tastes have a considerable influence on people’s desire to buy goods or services.

For example, at certain times people prefer consumer goods that are instant (fast food), so the demand for these goods will increase.

However, at other times people will leave the instant consumption goods because they contain preservatives that are harmful to health, so that the desire for these consumer goods will decrease.

Expectations (Consumer Expectations)

Changes that are predicted to occur in the future will affect demand.

If consumers predict that there will be an increase in the prices of goods in the future, then at this time consumers will make more purchases of goods that will experience an increase in prices.

Please to also read Supply And Demand Definition, Its Factors & Examples

Law Of Demand

If the price of an item decreases then the demand for the item will increase, on the other hand if the price of an item increases then the demand for the item will decrease.

So between the price of goods and the demand is to have the nature of the relationship in the opposite direction (negative).

This is very logical because if the price of an item rises, the buyer will look for another good as a substitute whose price does not increase, or if the nominal income of the consumer remains while the price of the good increases, then the consumer’s income will decrease, as a result, the consumer will reduce the demand for the good.

Conversely, if the price of goods decreases, consumers will reduce purchases of other goods and increase purchases of goods whose prices have decreased.

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