Theory of demand – The pillar of economics and business |
Posted: October 21, 2019 |
Understanding economics can be quite tough if you don't have a strong foundation in the subject. Economics is a subject which is depended upon one main concept that is the Theory of Demand. The Demand theory is a concept where the production of the goods and services is determined based on the demand of the consumers. Let's discuss in detail about how the demand theory works. What is the Theory of Demand? The Theory of Demand is a concept in economic where the relationship between the demands of the goods and services by the consumers and the prices of the goods are determined. This relationship is determined with a curve which is also known as the demand curve. This curve helps in determining whether or not the consumers are willing to buy your product (whether the demand is there in the market) and what the ideal price should be like for the customers to buy the product. This concept is used in multiple companies, from start-ups to MNC's when they are developing a product and is considered as the main element concept during market research. What are the factors which influence the demand? The main factors which influence the demand for goods and services are as follows: 1.Price of the products and services: This is one of the main factors which influence the decision of a consumer while purchasing a product or a service. Here the consumer has the power while purchasing a product, if the product has a reasonable rate then the customer is willing to buy the product. With the decrease in the price of the product more the demand for the product will increase, similarly with the rise in the price of the product there would be a decrease in demand. 2.Price of the alternate products and services: When the price of the desired product is high, the consumers would search for alternate products. For example, if the price of tea rose from Rs.15 to Rs.30 and the price of coffee is Rs.25, then the consumers would shift to coffee instead of purchasing tea at a higher price. In this case, there is a shift in the demand curve. 3.Income: The purchasing power also depends on the income of the consumer; therefore there are multiple levels in the market. The purchasing power of the lower-class, middle-class, upper-middle-class, and upper-class would be different from each other, so will be the demand for a product. 4.Taste and Preference: In this factor, want and need plays a great role. The products which you 'want' are the product which you desire to have but is not a necessity, but a 'need' is something which you require no matter what like groceries, toiletries, etc. These are the four main factors which help in determining the graphical representation of the relationship between the price and demand of the goods and services, which is also known as demand curve. It is very important to learn this concept as it helps in determining whether the product or services should be launched in the market or not and what should be the pricing of the product should be like. If you are able to crack this concept perfectly you will be able to launch a product without any problem. For a detailed description of the 'Theory of demand', you can refer to the economics sample paper class 11 which contain multiple questions with solutions as an example.
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