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Concepts of Demand

Economists use the term ‘demand’ to cannot

(i) Desire to have possession, and

(ii) Willingness to pay for that possession

Demand is thus reflected in terms of the amount the consumers are willing to buy at a given period of time.

Demand, in the economist’s sense, does not mean the wants, desire or need of people since these, may not mean the wants, desire or need of people since these may not be backed up by the ability to pay.

At any given time and for any goods or services, it is possible to perceive a consumer’s demand curve which relates the amount a consumer is willing to buy to each conceivable price for the the product.

An aggregative of individual demand curves yields a market demand curve. To derive the market demand curve we sum up individual demand curves, d₁…………d_n of consumers horizontally, as illustrated below, where i=1 & 2. The negative slope of these normal demand curves suggests an inverse relationship between price and quantity demanded.

It is also important to note at this stage that demand reflects consumer’s behavior- a combination of rational and optimality. By way of an optimal choice, a consumer tend to maximize satisfaction (e.g., ultity-content of goods and services) subject to constraints imposed by factor like limited budget of given tastes and preferences. Preference indicates ordering of items in the choice-set of a consumer. The feasibility of choice, given the preferences is taken care of by demand, i.e., placing an order at a price. Sometimes, choice may be strongly ordered, indication tastes and preferences are more dictating than the price income factors.

The sum up, economist’s concept of demand is not the same thing as desire (wishing it were so!), or need or choice or preference or order. Real world confusion may arise when in business practice, these terms are used interchangeably.