Everyone knows that in microeconomics there are two opposing economic concepts - supply and demand. In everyday life, they are also quite common. However, as a rule, the understanding of the essence of these terms by ordinary inhabitants is very superficial.
In a healthy economy, demand is always primary, and supply is secondary. The dependence of the volume of demand for the products of producer enterprises determines the value of their supply. It is the permissible balance of these two components that forms the prerequisites for the stable growth and development of the economy of any state. The purpose of this article is to reveal exactly the concept of the volume of demand as a primary element, its function and impact on economic processes.
Demand and demand. Is there a difference
Often these concepts are identified, which is fundamentally wrong, since there is a fundamental difference between them. To understand what it consists of, you need to start with terminology.
Demand is the need of consumers for a certain product at a given price in a certain time interval. It defines intentions backed by the availability of money. The common designation is D.
Example: Alex wants to buy a punching bag for 10, 000 rubles this month. He has money to buy this pear.
Demand volume is the amount of goods that solvent consumers bought at the stated price in a certain period of time. It reflects the purchased product at a specific price. It is designated - Q d.
Example: Alex bought a punching bag for 10, 000 rubles this month. He had money for it.
It's simple: to want to buy a punching bag for 10, 000 rubles if you have money to buy is demand, and to go and buy it for 10, 000 rubles if this amount is available is the volume of demand.
Thus, the following conclusion will be true: the volume of demand for a product is a quantitative reflection of the demand for that product itself.
Demand and Price
There is a very close relationship between the volume of demand and the price of this product.
It is quite natural and fair that the consumer always seeks to purchase goods cheaper. The desire to pay is small, but to get a lot encourages people to look for choices and alternatives. Therefore, the buyer will buy more goods if the price is lower.
Conversely, if the product becomes even slightly more expensive, the consumer will buy a smaller amount for the same amount of money, or maybe completely refuse to buy a specific product in search of an alternative.
The conclusion is obvious - it is the price that determines the volume of demand, and its influence is the primary factor.
Law of demand
From here it is very simple to derive a stable pattern: the volume of demand for a product increases when the price for it becomes lower, and vice versa, when the price of a product rises, it falls below Q d.
This pattern has been called the law of demand in microeconomics.
However, some correction should be made - this law reflects only the regularity of the interdependence of two factors. These are P and Q d. The influence of other factors is not taken into account.
Demand curve
The dependence of Q d on P can be graphically depicted. Such a mapping forms a certain curved line, which is called the "demand curve".
Fig. 1. The demand curve
Where:
ordinate axis Qd - reflects the volume of demand;
ordinate axis P - reflects price indicators;
D is the demand curve.
Moreover, the quantitative display of D on the graph is the volume of demand.
Figure 1 clearly shows when P is 10 cu, Q d - 1 cu product i.e. at the maximum price, nobody wants to buy a product. When price indicators gradually decrease - Qd increases proportionally, and when the price at the minimum mark 1 - Qd reaches a maximum value of 10.
Factors Affecting Qd
Q d on the product depends on a number of factors. In addition to the key and main factor - price (P), there are a number of other parameters that affect its value, given that the price is constant and does not change:
1. Buyer Income
This is perhaps the second most important factor after the price. Indeed, if people began to earn less, it means that they will save and spend less, cutting back the volume of consumption that was before. It turns out that the price of the goods did not change, but the volume of its consumption is reduced due to the fact that people simply have less money to buy it.
2. Goods substitutes (analogues)
These are goods that can partially or completely replace the usual consumer goods for the buyer, because it has similar properties, and perhaps even surpasses in certain parameters.
When such a product appears on the market (say T2), it immediately attracts the attention of consumers, and if the properties are similar and the price is lower, then people switch to its consumption partially or completely. As a result, Q d on the first product (T1) falls.
And vice versa, if similar products already exist and have their own circle of fans - when their price increases, people look for cheaper and switch to the primary product if it turns out to be less expensive. Then the demand for T1 increases, but the price for it did not change.
3. Complementary goods
Often they are called attendant. They just complement each other. For example, a coffee machine and coffee or filters for it. What is the point of a coffee machine without coffee? Or a car and tires for it or gasoline, an electronic clock and batteries for them. For example, an increase in the price of coffee will reduce its consumption, which means that the volume of demand for coffee machines will fall. Direct dependence - an increase in the price of a complementary product reduces the Q d of the main one, and vice versa. Also, increasing the price of the main product reduces its consumption and affects the reduction of Q d related products.
Increasing the price of service for a particular brand of car reduces the demand for these cars, but increases it by analogs with cheap service.
4. Seasonality
It is known that each season has its own characteristics. There are goods for which demand does not change at all depending on seasonal fluctuations. And there are goods for which he is too sensitive to such fluctuations. For example, bread, milk, butter will be bought the same at any time of the year, i.e. the seasonality factor has no effect on the Q d of these foods. What about ice cream? Or watermelons? The volume of demand for ice cream increases sharply in the summer, and rapidly falls in the fall and winter. Despite the fact that in both examples the price for these products is conditionally unchanged, which means that it has no effect on its value.
5. Changes in preferences and fashion
A striking example is the modernization of gadgets and technology. Who needs phones that were released 5 years ago? Buyers refuse to buy obsolete equipment, preferring modern.
6. Consumer expectations
In anticipation of a rise in price for a particular product, buyers make stocks for the future, which means that the volume of demand for this in a certain period increases.
7. Change in population
Population reduction means a reduction in the number of customers, and vice versa.
All factors, with the exception of price, are called non-price factors.
The influence of non-price factors on the demand curve
Price is the only price factor. All others that directly or indirectly affect the volume of demand are non-price factors.
Under their influence, the demand curve changes its position.
Fig. 2. Shifts in the demand curve
Let's say people began to earn more. They have got more money and they will be able to buy more goods, even if the price of them does not become lower. The demand curve moves to position D2.
In a period of falling incomes, money becomes less and people cannot buy the same amount of goods, even if the price of it has not been increased. The position of the demand curve is D1.
The same dependence can be traced when the price of related products and substitute products changes. For example, the price of iPhones has become higher, which means that people will look for products with similar technical characteristics, but cheaper than iPhones. As an option - smartphones. Qd on iPhones becomes smaller (movement along the curve D from point A to A 1). The demand curve of smartphones moves to the D2 position.
Fig. 3. Shifts of the D curve depending on changes in prices for related products and substitute products
Due to the rise in price of iPhones, demand will fall, for example, for covers for them (the curve will go to D1), but for covers for smartphones it will increase (the curve in position D2).
It is important to understand that under the influence of prices, curve D does not move anywhere, and changes are reflected by the movement of indicators along it.
The curve moves to the positions D1, D2 only under the influence of non-price factors.
Demand function
The demand function is an equation that reflects changes in the volume of demand (Qd) depending on the influence of various factors.
The direct function reflects the quantitative ratio of the product to its price. Simply put, how many units of goods do consumers intend to buy at a set price.
Q d = f (P)
The inverse function shows what the highest price the buyer intends to pay for the set amount of goods.
P d = f (Q)
This is the inverse relationship between the volume of demand q for products and the price level.
Demand function and other factors
The influence of other factors has the following mapping:
Q d = f (A B C DEFG)
where, A, B, C, D, E, F, G are not price factors
It should be borne in mind that various factors at different times have an unequal effect on Q d. Therefore, for a more correct reflection of the function, we should apply coefficients that will indicate the degree of influence of each factor on Qd in a certain period of time.
Q d = f (A w B e C r D t EyF u G i)
