Demand is a prin­ci­ple of eco­nom­ics that cap­tures the con­sumer's desire to buy the prod­uct or ser­vice. The demand is cal­cu­lated as the price the con­sumers are will­ing to pay for the prod­uct or ser­vice. If we keep all other fac­tors con­stant, the demand should go up as the prices go down, and the demand should go down as the prices go up.

This sim­ple prin­ci­ple keeps the mar­ket in equi­lib­rium. Mar­ket and aggre­gate demand are used to under­stand the demand for goods and ser­vices.

  • Demand is the con­sumer’s desire to pur­chase a par­tic­u­lar good or ser­vice.
  • Mar­ket demand is the demand for a par­tic­u­lar good in the mar­ket.
  • Aggre­gate demand(AD) is the total demand for goods and ser­vices in the econ­omy.
  • Demand and sup­ply match deter­mines the price of the good or ser­vice.
  • Under­stand­ing the con­cept of demand.

Com­pa­nies often want to find the demand for their prod­ucts or ser­vices. Var­i­ous com­pa­nies do sur­veys to under­stand the demand. Demand at par­tic­u­lar price points helps com­pa­nies price their prod­ucts or ser­vices. Demand is an incom­plete con­cept with­out sup­ply. Con­sumers want to pay the least amount for the prod­ucts or ser­vices. The sup­pli­ers, on the other hand, want to max­i­mize the return. Thus, the point of inter­sec­tion of the demand and sup­ply deter­mines the price of the prod­uct or ser­vice.

Demand for a com­mod­ity may be either with respect to an indi­vid­ual or to the entire mar­ket.

  • Indi­vid­ual demand :

Indi­vid­ual demand refers to the quan­tity of a com­mod­ity that a con­sumer is will­ing and able to buy at each pos­si­ble price dur­ing a given period of time.

  • Mar­ket demand :

Mar­ket demand refers to the quan­tity of a com­mod­ity that all con­sumers are will­ing and able to buy at each pos­si­ble price dur­ing a given period of time.

Key terms

Inven­tory Man­age­ment (IM)
Inven­tory man­age­ment is the process of order­ing, stor­ing and using a com­pa­ny's inven­tory: raw mate­ri­als, com­po­nents, and fin­ished prod­ucts. Aggre­gate Demand (AD) Aggre­gate demand is a mea­sure­ment of the total amount of demand for all fin­ished goods and ser­vices pro­duced in an econ­omy.