Demand and Supply & Concept of Demand

Demand refers to the willingness or ability of a buyer to pay for a particular product. Supply refers to the quantity of a product that a seller agrees to sell in the market at a particular price within a specific point of time.

The working of the market system is governed by two forces, demand and supply.

These two forces play a crucial role in determining the price of a product and size of the market.

“The demand for goods is schedule of the amounts that buyers would be willing to purchase at all possible prices at any one instant of time”-Prof Mayers.

Demand refers to the willingness or ability of a buyer to pay for a particular product. In other words demand can be defined as the quantity of a product that a buyer desires to purchase at a specific price and time period The’ demand for a product is influenced by a number of factors, such as price of the product, change in customers’ preferences, and standard of living.

The demand for a product in the market is governed by the law of demand, which states that the demand for a product decreases with increase in its prices and vice versa, while other factors are constant. In the market system, buyers constitute the demand for a product, while sellers represent the supply side of the product in the market.

Supply refers to the quantity of a product that a seller agrees to sell in the market at a particular price within a specific point of time. There are various determinants of supply, including price of a product, cost of production, government policies, and technology.

Unlike demand, the law of supply expresses the direct relationship between the supply and price of a product, while other factors remaining the same. In simple words, the law of supply states the supply of a product increases with increase in its price other factors at constant.

The interaction between demand and supply helps in determining the market equilibrium price of a product. Equilibrium price refers to the price where the quantity demanded of a product by buyers is equal to the quantity supplied by sellers.

In other words, equilibrium price is a price when there is a balance between market demand and supply. The equilibrium price of a product can change due to various conditions, such as reduction in cost of production, fall in the price of substitutes, and unfavorable climatic conditions.

Concept of Demand:

Theoretically, demand can be defined as a quantity of a product an individual is willing to purchase at a specific point of time.

Some of the management experts have defined demand in the following ways:

According to Prof. Benham, “The demand for anything, at a given price is the amount of it which will be bought per unit of time at the price.”

In the words of Prof Hanson, “By demand is meant, demand at a price, for it is impossible to conceive of demand not related to price.”

As per Prof Hibdon, “Demand means the various quantities of goods that would be purchased per time period at different prices in a given market.”

According to Prof Mayers, “The demand for goods is schedule of the amounts that buyers would be willing to purchase at all possible prices at any one instant of time.”

From the aforementioned definitions, it can be concluded that demand implies a desire supported by an ability and willingness of an individual to pay for a particular product. If an individual does not have sufficient resources or purchasing power to buy a particular product, then his/her desire alone would not be regarded as demand.

For instance, if an individual desires to purchase a resort and does not have adequate amount of money to purchase the resort, his/her desire is not considered as demand for the resort Apart from It, if an affluent individual desires to purchase a resort, but does not have willingness to spend money for purchasing the resort then his/her desire is also not considered as demand.

Therefore, we can say that effective demand is the desire backed by the purchasing power and willingness of an individual to pay for a particular product. An effective demand has three characteristics namely, desire, willingness, and ability of an individual to pay for a product.

The demand for a product is always defined in reference to three key factors, price, point of time, and market place. These three factors contribute a major part in understanding the concept of demand. The omission of any of these factors would make the concept of demand meaningless and vague.

For example, the statement, “the demand for an ABC product is 200” neither conveys any meaning, nor does have any use for economic analysis or business decision making. On the other hand, the statement, “the demand for milk is 100 liters per day at a price of Rs. 15 per liter in City A.” provides a clear understanding of demand.