Demand is the most important component of market development

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Demand is one of the main forms of expressing solvent needs. This is the price that the consumer is willing to pay for the product he needs in a certain place at a certain time. Demand creates supply. It is these two components that are the basis for the functioning of any market, generating competition and setting prices. However, it should be understood that the mere desire to have a product that is not backed by cash is not demand.

This economic category can be considered based on numerous factors. So, individual demand is a personal need of a person, reinforced by financial means. The solvent desire to purchase a given service or product in a certain period of time of the entire society as a whole represents the aggregate demand.

This economic category is directly proportional to the price. Under ideal economic conditions, consumer demand is a category that will be higher the lower the price of the good we need. Conversely, at a high level of the established price, the demand for the product will fall. This dependence is the law of demand.

The motive for changing the level of demand can be one of threereasons:

1. a decrease in price leads to an increase in demand for the product;

2. if the product has a low cost, then the purchasing power of the consumer increases;

3. if the market is filled with this product, then the utility of the product decreases, and a person is ready to purchase it only at a low cost.

In this case, the quantity of goods that people want to buy in a given period of time at a given price is the quantity demanded.

Aggregate demand is influenced by factors that, by the nature of their occurrence, can be price and non-price. Price factors are those that directly affect the price. Non-price factors affect only demand. This is exactly the beginning from which they start when analyzing the purchasing power of a person.

Factors affecting aggregate demand

Factors	What is included in them
Price factors	Interest rate effect - when prices for any goods increase, the amount of loans increases and, accordingly, the level of the interest rate. The consequence is a decrease in demand.
	We alth effect - rising prices cause a decrease in the purchasing power of real financial assets (stocks, bonds, vouchers, etc.) As a result, there is a decrease in people's incomes and a decrease in their purchasing power.
	Effect of import purchases –an increase in the price of domestic goods reduces the demand for them. Consumers seek to satisfy their needs by purchasing imported, cheaper analogues.
Non-price factors	Change in consumer income - the growth of a person's income allows him to spend more money on the purchase of goods and services, i.e. demand is growing. Demand is affected inversely by a decrease in income.
	Change in investment costs - the growth in the value of investments (investment demand) is directly dependent on lower interest rates, lower taxes and deductions, efficient use of production capacity, introduction of know-how, etc.
	Change in general government spending - with an increase / decrease in the cost of the state mechanism for the acquisition of goods, a process of increase / decrease in demand occurs.
	Change in the cost of net exports - this is influenced by domestic inflation, terms of trade and changes in the income of foreign consumers.