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What is demand?

Demand

Demand is the appetite of a group of people for anything specific, whether cars or clothing, or for the general output of the economy in question. It is the other half of the equation from supply and the two ought to balance, but frequently fail to do so.

Key takeaways:

  • In economics, demand refers to the quantity of a good or service that consumers are willing and able to buy at a given price.
  • The law of demand states that as the price of a good or service increases, the quantity demanded will decrease, and vice versa.
  • The factors that can affect demand include changes in consumer income, tastes and preferences, the price of related goods, and the availability of substitutes.
  • Understanding the concept of elasticity of demand is important in determining how sensitive consumers are to changes in price.

Where have you heard about demand?

Investors will learn about demand from the reports of the companies in which they invest. These will refer to the state of demand for the companies' goods or services. Economic commentary focuses on the state of demand in the country under discussion.

What you need to know about demand

Demand describes the level of desire for goods and services among consumers in either specific markets or in the economy as a whole. Economic theory suggest demand ought usually to equal supply, because the suppliers themselves are earning wages which, in turn, drive demand. In fact, when demand flags for whatever reason, the economy is in danger of recession, while excess demand, outstripping supply, can create boom conditions that prove unsustainable. In the past, governments sought to manage the total level of demand in the economy, an approach that has partly returned to favour since the financial crisis.

Find out more about demand

To learn more about demand and its central importance to business and the economy, see our definition of supply.

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