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Demand is one of the important economic variable. It is the base of market economy. All of the economic decisions like what to produce, how for whom to produce etc are made on the basis of demand. As it determines the production activities, it is called the mother of production. If there is no demand, there is no need of production. The quantity demanded of a good depends on price on price of that good, other things remaining same.
Meaning of Demand
In general sense, demand denotes desire or willingness to have good and services. But, it implies more than desire in economics. In economics, demand is that willingness having ability and readiness to have goods and services. A beggar’s desire to travel by airlines from kathmandu to New Delhi can not be demand as he has no ability to pay for it. On the other hand, a businessman’s desire to travel by airlines from Kathmandu to New Delhi is the demand as he has the ability and willingness to pay for it. Hence, demand as he has the desire backed by willingness to pay for it. Hence, demand denotes the desire backed by willingness and ability to pay.
The following definitions are presented to clear the meaning of demand.
According to Pension,- “Demand is effective desire.”
This definition assumes three aspects of demand.
1. Desire to have something.
2. Ability to pay.
3. Willingness to pay.
According to Waugh,-“The demand for a commodity is the relationship between the price and the quantity that will be purchased at that price.”
In the words of Benham,-“The demand for anything at a given price is the amount of it which will be bought be unit of time at that price.”
By the analysis of above definitions, the demand of goods seems to be affected by the price of goods and time also. Hence the inclusion of the following elements is essential for demand.
1. Desire to have something: The desire to have something creates the demand. Thus to have good and services is the necessary element of demand.
2. Ability to pay:- Wealth or ability to pay is necessary to fulfill the desire to have something. Hence, ability to pay is the second necessary element of demand.
3. Willingness to pay:- The willingness to pay is necessary for demand with that of desire and ability. Hence, it is the other essential element of demand.
4.Particular price:- Demand is meaningless without price. According to Benham, “Demand means always at a price; the term has no significance unless a price is stated. As demand is related to a certain price, it is also the essential element of demand.
5.Particular time:- Demand is related to a particular price at a particular time. Price of commodity is different in different time and demand is affected by these different prices in different time. Hence, time is an essential element of demand.
6.Place and commodity to be purchased:- Demand is the quantity purchased at a particular place. Hence, the quantity purchased and placed of purchase should be included in demand.
Thus demand is the total amount of goods and services bought in a market by consumers at a particular price in particular time.
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Types of Demand
Demand can be classified in various types by its different basis. Generally, demand is affected by the price of commodity, consumer’s income and the price of related goods. In the words of Bober “By demand, we mean the various quantities of a given commodity or service which consumers would buy in one market in a given period of time at various prices or at various income or at various prices of related goods.”
On the basis of factors affecting demand, it has three main types.
1. Price demand
2. Income demand
3. Cross demand
Other things remain constant quantity of goods and services that the consumer would purchase at various prices at a time is called price demand. It includes various amounts of goods and services which are bought at various prices. The increases in price reduces the demand and vice-versa (opposite of it). Hence price shows the inverse relationship with quantity demanded. As quantity demanded is determined by the price of the commodity, it can be expressed as
D=f(P). Here, D=Demand, P=Price and f= Functional relationship.
Price demanded can be divided into two types.
1.Individual demand:- The amount of goods and services that an individual consumer will purchase at various prices at a certain time at a certain time at a certain price is known as individual demand. The quantity demanded by an individual Ram at various prices is the example of individual demand.
2. Market demand :- The total amount of goods and services that all costumers of market demand. It is the sum of all individual demand.
The demand which is associated with different income levels at a time is known as income demand. In other words, it is the amount of goods and services that costume or consumers would purchase at how the quantity purchased is affected by the change in income level of the consumers. Other things remaining constant, the quantity demanded will increase as income as income level increase and vice-versa(opposite of it).
The change in price of a good affects the quantity demanded of other related goods, other things remaining constant. The quantity purchased of other related goods in various prices of a good is known as cross demand. If two goods A and B are interested and change in the price of good A affects the demand of good B, then the quantity purchased of B at different prices of A is called cross demand.
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