In its broadest sense, demand refers to the need or want for products, more specifically goods and services. The Hierarchy of Needs, as defined by Maslow, gives the pyramid structure that defines the growing needs of humans under various conditions. Demand is a derivative of these needs and wants and is the reason for the market existing at all. The need for markets arose because people could not make all the things they needed by themselves. Before currency came in common circulation and usage the purchase goods and services was carried out through the barter system wherein a good or service would be paid for by a person by offering some product or service of equivalent value as agreed upon by the involved parties. The invention of currency made the entire process of commercial exchange much simpler and effective. In economics and microeconomics specifically, demand is an important prerequisite therefore the existence of a market and the generation of economic conditions. Here, demand products refers to both the willingness and ability to pay demanded. The first issue to examine with regard to demand in microeconomics is quantity demanded.
Quantity demanded refers to the cumulative volume of goods and services that buyers would purchase willingly and pay for given certain fixed market and social conditions. There are numerous conditions that come into effect here and impact the total quantity demanded in any market. These are:
This is one the two factors that most directly influence the quantity demanded of any commodity. The price of a commodity has a direct impact on how potential consumers and buyers will perceive it. The price quoted by the company also indicates to the particular market segment it targets. For example, the price range of luxury sedan cars usually targets middle to upper middle classes of society. The majority of the sales made by companies manufacturing such cars also comes from these segments. If the price of a given product falls in the budget range of the consumer, he/she is more likely to purchase it.
- Income and wealth consumer: This is the other factor that most directly impacts the quantity demanded of any product. Aside from the price of the product itself the financial ability of the consumer also matters greatly. If a consumer would be able to purchase a product but it would dent their pocket more than they would like, then the purchase is not likely to occur.
- Prices of substitutes and complements: The cost of other products in the same category also affects purchase decisions. Suppose a well known mobile phone brand is selling a Smartphone at a certain price and another lesser known brand is selling a phone with the same features at a much lesser price. In this case many buyers would be tempted to go for the latter. Also, the cost of complements and the cumulative expense they entail would be a factor of consideration here. The size of a given market affects the total quantity demanded by it. A company could possibly lower prices on its products if it expects to make profits by virtue of volume of sales. These are the tastes and likings of individuals which may lead them to go against market trends and consumer behavior expectations.
- Expectations of future prices: An expected rise in prices may prompt buyers to purchase products before the prices are increased, thus increasing demand.