Question 1

What is the simple definition of demand?

Accepted Answer

Demand is the desire, willingness and ability of consumers to pay a certain price for a product or service at a given period. Businesses can use it to determine the necessary supply and how to price an item.

Question 2

How does the law of demand work?

Accepted Answer

The law of demand states that, if all other factors are constant, price determines the number of products or services consumers can purchase. That means higher prices lead to lower demand.

Question 3

What factors affect demand?

Accepted Answer

There are various factors affecting demand. These include the price of the item, income of the buyer, cost of related goods or services, consumer tastes or preference and consumer expectations.

Question 4

How does demand affect price?

Accepted Answer

Following the law of demand, businesses can assume that a change in the price of an item will affect the purchase decision of consumers.

That said, demand can also affect prices. Demand and supply should be equal. Otherwise, the cost of a product may change. For instance, prices tend to rise when demand exceeds supply. Likewise, excess in supply and lack of demand can lead to lower prices.

Question 5

How much do businesses depend on demand?

Accepted Answer

Businesses need to ensure that they have the capacity to match the demand of their target market. Demand helps companies decide on the quantity of supplies to produce. Additionally, it can also help them decide how to properly price their products or services.

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The Definition of Demand in Economics

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