Economic laws: the magnitude of demand

Demand is the number of services or goods that a consumer is willing to purchase over a certain period of time at a certain price. The magnitude of demand depends both on the price of the goods, and on the taste, income and number of customers. The main factor that influences it is price. The relationship between the volume of customer demand and the price of the product is reflected in the law of demand. Its meaning is described by the following dependence: the more expensive the product, the lower the number of buyers ready to purchase it, respectively, the lower the demand. And, on the contrary, in the presence of other equal conditions, the demand size increases with the price reduction. Consequently, a negative, inverse relationship is established between these indicators.

This relationship is due to the following reasons:

The steady high price causes reluctance on the part of the consumer to purchase the goods, while the lower increases the number of purchases and the number of buyers, as a result of which demand and demand increase.

Consumption is affected by the principle of marginal diminishing utility, which shows that the acquisition of subsequent units of a certain product brings less satisfaction, and the purchase of an additional quantity of goods is possible only if the price decreases.

The economic law of demand is also explained by the effect of income replacement, which indicates that a lower price allows a person to purchase a larger volume of this product, while he does not refuse to buy other alternative products. The very effect of substitution marks the desire of the buyer to replace expensive goods with cheaper ones.

Change in the magnitude of demand

In addition to the price of demand, many other factors influence:

First, a change in the taste of consumers (the popularity of physical health causes an increase in demand for sports goods).

Secondly, the change in the number of buyers (a decrease in the birth rate reduces consumption and demand for goods for children).

Change in income (increased welfare increases the consumption of fruits and meat, while reducing the demand for bread, potatoes, pasta, etc.).

Changes in prices for related services and goods (a reduction in tariffs for passenger air transportation minimizes the demand for tickets for other modes of transport).

Changing the expectations of buyers (the appearance of information on the decline in purchases of imported sunflower oil will cause an increase in the price of this product and the expansion of the current demand for oil).

Changes in the country's economic policy (lowering tax rates leads to higher incomes, and, as a consequence, to increased demand and consumption).

The law of demand gives an economic objective assessment to the behavior of sellers and buyers, which allows them to anticipate their reaction to price changes.

But, as practice shows, there are situations - exceptions from the law of demand. For example, with the increase in the price of essential products (meat, potatoes, salt, bread), the demand for them continues to increase. In this case, the increase in demand was provoked by the outlined tendency to increase prices. Buyers are waiting for even greater increases and increase purchases of these goods.

Exceptions to the rules of the law of demand describes the effect of Giffen. This English economist has established that a fall in the prices of luxury goods does not cause an increase in demand, but, on the contrary, provokes a decline in prices. It is established that these goods are bought not only because of high consumer properties, but in many respects for showing a high status of a person, and a decrease in price reduces their attractiveness.

There is also the Veblen effect, according to which in the short term, the increase in the price of the commodity raises the demand value. In this case, we can talk about consumer expectations of a new increase in the near future price of goods.