The volume of demand is Concept, definition of value, functions

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

Everyone knows that in microeconomics there are two opposite 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 people is very superficial.

In a he althy economy, demand always comes first and supply comes second. The dependence of the volume of demand for the products of manufacturers' enterprises determines the magnitude of their supply. It is the acceptable balance of these two components that forms the prerequisites for 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 functions and impact on economic processes.

Demand and volume of 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 is, you need to start with terminology.

Demand is the need of consumers for a certain product at a given price at a certain time interval. Hedefines intentions backed up by the availability of money. The generally accepted designation is D.

Example: Alexey 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 item at a specific price. Designated - Q_d.

Example: Alex bought a punching bag for 10,000 rubles this month. He had money for it.

It's simple: wanting to buy a punching bag for 10,000 rubles with money to buy is demand, and going and buying it for 10,000 rubles with this amount is the volume of demand.

Thus, the following conclusion will be true: the volume of demand for a product serves as a quantitative reflection of the demand for this product.

Demand and price

There is a very close relationship between the quantity demanded and the price of this commodity.

It is quite natural and fair that the consumer always seeks to purchase goods cheaper. The desire to pay little and 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 may even refuse to buy a particular product in search of an alternative.

The conclusion is obvious - it is the price that determines the volume of demand, and its influence isparamount factor.

The law of demand

From here it is very easy to deduce a stable pattern: the volume of demand for a product increases when the price of it becomes lower, and vice versa, when the price of a product rises, it becomes lower Q_d.

This pattern is 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 display forms a kind of curved line, which is called the "demand curve".

Fig. 1. Demand curve

where:

Y-axis Qd - reflects the volume of demand;

Y-axis P - reflects price indicators;

D is the demand curve.

Moreover, the quantitative display of D on the chart is the volume of demand.

Figure 1 clearly shows when P is 10 c.u., Q_d is 1 c.u. goods, i.e. no one wants to buy the product at the maximum price. When the price indicators gradually decrease, Qd increases proportionally, and when the price is at the minimum mark of 1, Qd reaches the maximum value of 10.

Factors affecting Qd

Q_d on products depends on a number of factors. In addition to the key and main factor - the price (P), there are a number of other parameters that affect its value, given that the priceconstant and does not change:

1. Buyer income

This is perhaps the second most important factor after the price. After all, if people began to earn less, it means that they will save and spend less, cutting back on the volume of consumption that was before. It turns out that the prices 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 it in some parameters.

When such a product appears on the market (let's say T2), it immediately attracts the attention of consumers, and if the properties are similar, but the price is lower, then people switch to its consumption partially or completely. As a result - Q_d falls on the first item (T1).

And vice versa, if analogue products already exist and have their own circle of fans, when their price increases, people look for cheaper ones and switch to the primary product if it turns out to be of lower cost. Then the demand for T1 increases, but its price has not changed.

3. Complementary Products

They are often referred to as companions. They just complement each other. For example, a coffee machine and coffee or filters for it. What's the point of having a coffee machine without coffee? Or a car and tires for it, or gasoline, electronic watches and batteries for them. For example, an increase in the price of coffee will reduce its consumption, which means that the demand for coffee machines will fall. Direct dependence - an increase in the price of a complementarythe commodity reduces Q_d of the main one, and vice versa. Also, an increase in the price of the main product reduces its consumption and affects the reduction of Q_d of the related product.

Increasing the price of service for a particular brand of car reduces the demand for these cars, but increases it for analogues with cheap service.

4. Seasonality

It is known that each season has its own characteristics. There are goods, the volume of demand for which does not change at all depending on seasonal fluctuations. And there are goods for which it is too sensitive to such fluctuations. For example, bread, milk, butter will be bought at any time of the year in the same way, 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 rises sharply in summer, and falls rapidly in autumn and winter. Given that in both examples the price of these products does not change conditionally, which means that it has no influence 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 outdated equipment, preferring modern ones.

6. Consumer expectations

When expecting a rise in price of a particular product, buyers stock up for future use, which means that the volume of demand for this in a certain period increases.

7. Population change

Reducing the population means reducing the number of buyers, and vice versa.

All factors behindexcluding price are called non-price factors.

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 start earning more. They have more money and will be able to buy more goods, even if the price of them does not decrease. The demand curve moves to position D2.

During the period of falling incomes, money becomes scarcer 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 tracked 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. Alternatively, smartphones. Qd becomes smaller on iPhones (movement along curve D from point A to A₁). The demand curve for smartphones moves into position D2.

Fig. 3. Shifts of the D curve depending on changes in prices for related goods and substitute goods

Due to the rise in price of iPhones, demand will fall, for example, for cases for them (the curve will go to D1), but for cases for smartphones, on the contrary, it will increase (the curve is in position D2).

It is important to understand that under the influence of the price curve D does not shift anywhere, and changesare reflected by the movement of indicators along it.

The curve moves to 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.

Direct function reflects the quantitative ratio of the product to its price. Simply put, how many units of a good a consumer intends to buy at a given price.

Q_d=f(P)

The inverse function shows what is the highest price the buyer is willing to pay for a given quantity 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 display:

Q_d=f(A B C D E F G)

where A, B, C, D, E, F, G are not price factors

It should be taken into account that different factors at different times have an unequal influence on Q_d. Therefore, for a more correct reflection of the function, coefficients should be applied that will indicate the degree of influence of each factor on Qd in a certain period of time.

Q_d=f(A_wB_eC_{r D}t_EyFu_Gi₎

Conclusion

In conclusion of the above, we can only add that demand and volume of demand are different expressions of the same market situation. Analysisdemand and calculating demand volumes is not an easy task. This is done by narrowly specialized specialists, marketers. Enterprises are ready to pay a lot of money for the study of demand volumes, because there is a direct dependence of the volume of demand (Q) on the company's products, more precisely, on the volume of production of various goods in the most preferred quantity to ensure the profitability of the enterprise. Only accurate data on the volume of real demand and the factors influencing it will allow manufacturers and trading companies to rationally calculate the supply. This balance is the key to he althy market relations in the present and future periods.