Market demand. Demand curve. The law of demand

Economic science involves many terms, rules, laws, formulas, hypotheses, and ideas. No statement can be absolutely right or wrong. The thought of every economist lends itself to criticism. After all, unlike mathematics, there are simply no exact rules, such as twice two is four.

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

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

This article details the market demand, the demand curve, the factors affecting its level.

Types of demand

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

So, demand is a declared need for some good of the subject of market relations. For example, if you have money for a particular product that you need, then you are creating a demand for this good.

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

At the same time, individual, market and aggregate demand are singled out . They differ only in the number of participants and the scale of the market.

So, individual demand is a need for a product that exists for a certain buyer. For example, if you specifically need an aquarium, this is your individual demand.

Market demand is a general economic value that unites several individual demands. Through this type of demand , the demand for a consignment of a certain category of consumers is determined. That is, in comparison with the first kind, this is a more large-scale concept, depending not on one subject of market relations, but on the whole group.

Aggregate demand is the sum of all local demand that exists in a particular market. We can say that he characterizes the need of all subjects of economic relations for different goods, but in the plane of one market, that is, the combined market demand.

Demand curve. The law of demand

Economists use laws to characterize each concept, derive formulas and compose graphs. In the same way, the demand itself is described.

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

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

What tools can be used 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 on the basis of collected data on the level of demand, depending on changes in the price of the product.

For example, we have the following data:

Price of service, USD (R)	Level of demand, USD (Q)
eleven	25
15	22
20	21
25	16

Let's imagine that the above table characterizes a certain market demand. The demand curve will look like this:

As you can see, demand does not have a direct dependence on the price of the goods, but is represented by a curve line. In the same way, you can graphically represent any market demand. The demand curve always demonstrates the price dependence of the needs of market participants.

The equation of demand

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

The curve of market demand, the graph of which is given above, can be described using a special formula. Using it, you can easily and at any time know how much will fluctuate demand for specific changes in prices.

This is very useful information for sales managers (managers), commercial managers of any enterprise, firm, or company that sells products. After all, in most markets there is competition, and in pursuit of profit, do not forget that demand can change.

The equation of the market demand curve can be represented in the following form:

P = x - y * q, where:

X, y are the parameters that are obtained by analyzing the state of the market. "X" is the price level at which demand will be 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 how much demand varies depending on the unit of price change.

The schedule can be used in practice

Applying this equation in practice, it becomes obvious that the curve of market demand shows how the volume of sales of products will decrease with the increase in its price. Of course, we need to look for the situation when the interaction of the highest possible price with the largest sales of goods. Only in this case it will be possible to say that the enterprise receives the maximum income from its activities.

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

Elasticity is a factor affecting demand

The elasticity of demand refers to an indicator that allows you to determine the degree of dependence of consumer activity on the price or income level of consumers on the goods or services they acquire.

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

Types of elasticity

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

1. Totally elastic.

2. Elastic.

3. Partially elastic.

4. Inelastic.

5. Absolutely inelastic.

The first type of indicator means that for a buyer the goods are not strategic, they have many substitute products or analogues, which means that demand will react sharply to price changes. It can also be said that there is only one reasonable price for the product, in which there will be a demand for it.

The second type says that price fluctuations are less than changes in the level of demand. This often happens when the goods are close to luxury goods.

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

Not always demand depends only on the price

Further, inelastic demand. Usually it can be observed in the market of goods that people use daily. It can be soap, toilet paper, razor blades, and the like. That is, those groups of goods that are really needed by consumers, and they are ready to overpay for them a little.

It can also be products that are presented on the market in a narrow assortment, and there is a small number of substitute products.

The last consider absolutely inelastic demand. In this case, the curve of market demand shows a situation where the demand for a commodity does not depend on its price in any way. On the chart, this can be seen in the form of a line parallel to the axis with the price.

It happens when the market of essential goods is researched. They can be: medicines, medical products, certain groups of food products (bread, water, etc.), utilities (light, water, gas), etc.

What else influences the demand?

The curves of individual and market demand help to analyze the buying activity, as well as 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 and other factors affecting demand. Below is the full list:

1. The fluctuation of the price for the product of interest.

2. Change in the cost of substitute products or components.

3. Purchasing power of consumers (income).

4. Fashion trends.

5. Seasons.

6. Projected 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;

• Components are becoming cheaper;

• Growing consumer incomes;

• The advertising company becomes more ambitious;

• The season of active use of the goods comes;

• Rumors about a rise in price of the goods.

The reverse situation will be observed if:

• Substitute products become cheaper;

• Accessories become more expensive;

• The incomes of buyers decrease;

• The goods are no longer considered fashionable, modern.

Indeed, there are a lot of factors influencing the level of demand, and it is easy to calculate it using the appropriate formula and graph.

When carrying out the analysis, it is important to understand that the market is not standing still and is constantly developing, so using the demand curve, as well as conducting research is best in dynamics.