Market demand. Demand curve. Law of demand

Anonim

Economic science involves many terms, rules, laws, formulas, hypotheses, as well as ideas. No statement can be absolutely right or wrong. The thought of every economist is amenable to criticism. Indeed, unlike mathematics, there will be no exact rules, such as two and two will be four, just not.

This is due to many factors. The main one is hidden in the very object of research, which is chosen by this science as the key one - relations between the subjects of market relations.

What does it mean? What is good for one is not always good for another either. Each participant in market relations has its own marginal utility of a product, product, service. Someone produces, and someone consumes.

This article describes in detail the market demand, the demand curve, factors affecting its level.

Kinds of demand

The study of such a science as economics always begins with an explanation of the concepts of supply and demand. They are the tool, knowing that you can begin to explore the economic ties and relations between market participants.

So, the demand is the declared need for any benefit of the subject of market relations. For example, if you have money for a certain product that you need, then you are already creating a demand for this benefit.

In addition, demand depends on the elasticity of the market, which describes the relationship between supply and demand through the price level of the necessary goods.

At the same time, individual, market and aggregate demands are distinguished. They differ only in the number of participants and the scale of the market.

So, individual demand is the need for a product that a particular customer has. For example, if you specifically need an aquarium, this is your individual demand.

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Market demand is a common economic value that combines several individual demands. Through this type of demand is determined by the need for consignment of goods of a certain category of consumers. That is, in comparison with the first type, this is a larger-scale concept, depending not on one subject of market relations, but on the whole group.

Aggregate demand is the sum of all local demands that exist in a particular market. It can be said that it characterizes the need of all subjects of economic relations for various goods, but in the plane of one market, that is, unified market demand.

Demand curve. Law of demand

Economists use laws, deduce formulas, and make graphs to characterize each concept. The demand itself is described in the same way.

Under the law of demand, the hypothesis is assumed that the lower the price of a product, the more its units will be able to sell, all other things being equal. The assumption looks absolutely plausible only at first glance, but it is this that allows you to take the first steps in the economic analysis of market demand values.

If we take into account such a thing as the elasticity of demand, then the law becomes not completely correct, but we will talk about this later.

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What tools can I use to analyze market demand? The demand curve is used to visualize the results obtained when collecting data on the demand for goods and services. It is a graph that is compiled based on the collected data on the level of demand depending on changes in the price of products.

For example, we have the following data:

service price, cu (R)

level of demand, cu (q)

eleven

25

15

22

20

21

25

sixteen

Imagine that the table above describes a particular market demand. The demand curve will look like this:

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As you can see, the demand is not directly dependent on the price of the goods, but is represented by a curved line. In the same way, you can graphically depict any market demand. The demand curve always clearly shows the price dependence of the needs of market entities.

Demand equation

It is seen that each price corresponds to its level of demand. In economics, scientists can describe any phenomenon using a specific formula. How to apply this to our research facility?

The market demand curve, which is shown above, can be described using a special formula. Using it, you can easily and at any time find out how much demand will fluctuate with specific price changes.

This is very useful information for directors (managers) for sales, commercial managers of any enterprises, firms, companies that sell any products. Indeed, in most markets there is competition, and in the pursuit of profit, we should not forget that demand may change.

The equation of the market demand curve can be represented as follows:

Р = x - y * q, where:

x, y - parameters that are obtained by analyzing the state of the market. “X” is the price level at which demand will be equal to 0. At the same time, “y” is responsible for the degree of slope of the curve relative to the axis. This means that the second variable determines the intensity with which the demand changes depending on the unit of price change.

The schedule can be used in practice.

Applying this equation in practice, it becomes obvious that the market demand curve shows how product sales will decrease as its price rises. Of course, you need to look for the situation when the interaction of the highest possible price with the largest sales of goods occurs. Only in this case, we can say that the company receives the maximum income from its activities.

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So, the basic principle of the law of demand is preserved: the lower the price P, the more they can buy goods. But this is only in this particular case. What can affect the situation?

Elasticity - a factor affecting demand

Elasticity of demand is an indicator that allows you to determine the degree of dependence of consumer activity on the price or level of income of buyers on the acquired goods or services.

In this case, we dwell on the price elasticity of demand.

Types of elasticity

Depending on the model and type of economic model for building market relations, the following types of demand can be distinguished:

  1. Absolutely elastic.

  2. Elastic.

  3. Partially elastic.

  4. Inelastic.

  5. Absolutely inelastic.

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The first type of indicator means that for the buyer the product is not strategic, has many substitutes or analogues, and therefore the demand will react sharply to price changes. You can also say that there is only one reasonable price for a product, at which there will be a demand for it.

The second type indicates that price fluctuations are less than changes in the level of demand. This is often the case when goods are close to luxury items.

With partial elasticity, the market demand curve shows that the change in demand is proportional to the price. That is, on the graph one could observe a straight line that would cross both axes at the same distance from their beginning.

Not always demand depends only on price.

Further, inelastic demand. It can usually be seen on the market for products that people use daily. It can be soap, toilet paper, razor blades, and the like. That is, those groups of goods that are really necessary for consumers, and they are ready to overpay for them a little.

It can also be a product that is presented on the market sufficiently in a narrow range, and there are a small number of substitute products for it.

Last we consider absolutely inelastic demand. In this case, the market demand curve shows a situation where the demand for a product does not depend on its price. On the chart, this can be seen as a line parallel to the axis with the price.

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This is what happens when the essential goods market is researched. They may be: drugs, medical devices, certain groups of food products (bread, water, etc.), utilities (electricity, water, gas), etc.

What else affects the demand?

Curves of individual and market demand help to analyze consumer activity, as well as to find the best price / volume ratio.

The graph above shows the dependence of the level of demand on the price of the goods. But it is worth noting other factors affecting demand. Below is a complete list:

  1. Price fluctuations for the product of interest.

  2. Change in the value of substitute goods or components.

  3. Consumer purchasing power (income).

  4. Fashion trends.

  5. Seasons.

  6. Forecast changes in the market (for example, rumors of a crisis, inflation, etc.).

How will the demand curve behave in these cases?

The curve of aggregate market demand will shift to the right along the abscissa axis in such situations:

  • increase in the cost of substitute goods;

  • parts become cheaper;

  • growing consumer incomes;

  • advertising campaign becomes more ambitious;

  • the season of active use of the goods comes;

  • rumors about the rise in price of goods.

The reverse situation will be observed if:

  • substitute products are becoming cheaper;

  • parts become more expensive;

  • incomes of buyers decrease;

  • the product is no longer considered fashionable, modern.

Indeed, there are a lot of factors influencing the level of demand, and it can be easily calculated using the appropriate formula and graph.

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When analyzing, it is important to understand that the market does not stand still and is constantly evolving, so that it is best to use the demand curve as well as conduct research in dynamics.

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