In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay (see also supply and demand).
The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.
Economists record demand on a demand schedule and plot it on a graph as a demand curve that is usually downward sloping. The downward slope reflects the relationship between price and quantity demanded: as price decreases, quantity demanded increases. In principle, each consumer has a demand curve for any product that he or she would consider buying, and the consumer’s demand curve is equal to the marginal utility (benefit) curve. When the demand curves of all consumers are added up, the result is the market demand curve for that product. If there are no externalities, the market demand curve is also equal to the social utility (benefit) curve.
Elements of the Law of Demand As Melvin and Boyes note the law of demand is defined as:
1. The quantity of a well-defined good or service that:
2. People are willing and able to buy.
3. During a particular period of time.
... technology improves •The shortage is the quantity gap between the demand curve and the supply curve at the shortage price. •A surplus ... purchasers substitute along their demand curve, buying less jam and also less bread. This causes the demand curve for bread to shift ... buyers shift along their demand curve to buy less bagels and substitute toward bread, shifting the demand curve for bread to the ...
4. Decreases/increases as the price of that good or service rises/falls
5. All other factors remain constant.
Melvin and Boyes (2010)
Demand is a relationship between two variables, price and quantity demanded, with all other factors that could affect demand being held constant.
‘well defined’- The key phrase in the first element is “well defined”. The purpose of the phrase is to ensure that we are examining the relationship between price and quantity demanded for the same good. If we are interested in demand for a particular good there is no reason to compare the relationship between the price of the good and the change in quantity demanded of a different goods. Goods are well defined if they share the same characteristics – brand, model, age, quality and performance to name a few. For example a Cadillac CTS-V is a high performance car manufactured by General Motors. The defining feature of the car is its engine – a supercharged OHV 6.2 liter L V-8. The engine produces 556 horsepower and 551 lb·ft of torque. The enables the to go from zero to 60 in 3.9 seconds. The car cost about 65,000.00. If we are interested in the demand for the CTS-V we need to compare the price of a CTS-V to the quantity demanded for a CTS-V and not a Ford Festiva.
willing and able – to participate in the market a consumer must not only be willing to buy a good she must be able to buy as well. For example, John may want to buy a Cadillac CTS. However unless he has the cash or credit to consummate the purchase his unrealized desires are irrelevant.
particular time period – demand measures the rate at which goods are being purchased during a specified period of time. For example to say that four thousand units are sold at a price of 65,000 does not tell us the level of demand unless we specify the time period per day per week per month.
nature of the relationship – this portion of the definition establishes that the price and quantity demanded have a negative or inverse relationship along the demand curve.
held constant ; there are innumerable factors other than price than can affect the level of demand. Some of the more important are income, price of related goods, number of buyers, expectations and tastes and preferences. To focus on the cause and effect relationship between the good’s own price and the quantity of the good demanded all these other factors must be held constant. To hold a variable constant means to freeze its value and not allow it to change.
... demand. Firstly, demand is elastic when the percentage in quantity is more than the percentage change in price. Secondly, the demand ... of labor decreases, all factors remaining constant, the marginal productivity of labor would increase ... on the relationship that time has on the consumer and the market price of the ... marginal utility depends on indivisible consumer goods. This means that a proportionate ...