Loading the player...

What is 'Demand'

Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

Think of demand as your willingness to go out and buy a certain product. For example, market demand is the total of what everybody in the market wants.


Businesses often spend a considerable amount of money to determine the amount of demand the public has for their products and services. Incorrect estimations either result in money left on the table if demand is underestimated or losses if demand is overestimated.

Demand is closely related to supply. While consumers try to pay the lowest prices they can for goods and services, suppliers try to maximize profits. If suppliers charge too much, demand drops and suppliers do not sell enough product to earn sufficient profits. If suppliers charge too little, demand increases but lower prices may not cover suppliers’ costs or allow for profits. Some factors affecting demand include the appeal of a good or service, the availability of competing goods, the availability of financing and the perceived availability of a good or service.

Aggregate Demand vs. Individual Demand

Every consumer faces a different set of circumstances. The factors she faces vary in type and degree. The extent to which these factors affect market demand overall is different from the way they affect the demand of a particular individual. Aggregate demand refers to the overall or average demand of many market participants. Individual demand refers to the demand of a particular consumer. For example, a particular consumer’s demand for a product is strongly influenced by her personal income. However, her personal income does not significantly affect aggregate demand in a large economy.

Supply and Demand Curves

Supply and demand factors are unique for a given product or service. These factors are often summed up in demand and supply profiles plotted as slopes on a graph. On such a graph, the vertical axis denotes the price, while the horizontal axis denotes the quantity demanded or supplied. A demand profile slopes downward, from left to right. As prices increase, consumers demand less of a good or service. A supply curve slopes upward. As prices increase, suppliers provide less of a good or service.

Market Equilibrium

The point where supply and demand curves intersect represents the market clearing or market equilibrium price. An increase in demand shifts the demand curve to the right. The curves intersect at a higher price and consumers pay more for the product. Equilibrium prices typically remain in a state of flux for most goods and services because factors affecting supply and demand are always changing. Free, competitive markets tend to push prices toward market equilibrium.

  1. Normal Good

    An economic term used to describe the quantity demanded for a ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being ...
  3. Demand Shock

    A sudden surprise event that temporarily increases or decreases ...
  4. Demand Theory

    A theory relating to the relationship between consumer demand ...
  5. Acceleration Principle

    An economic concept that draws a connection between output and ...
  6. Quantity Demanded

    A term used in economics to describe the total amount of goods ...
Related Articles
  1. Economics

    What is Demand?

    Demand is the economic term for the cumulative wants and desires of consumers as they relate to a particular good or service. Generally speaking, if all other factors remain constant, as demand ...
  2. Economics

    Explaining Quantity Demanded

    Quantity demanded describes the total amount of goods or services that consumers demand at any given point in time.
  3. Economics

    Law of Demand

    The law of demand is one of the most fundamental principles in microeconomics. It's all about how price affects demand. According to the law of demand, for all other things remaining constant, ...
  4. Professionals


    Economics, put simply, is the study of shortages &ndash; supply vs. demand. As the demand for a product or service rises, the price of those goods or services will tend to rise. Alternatively, ...
  5. Economics

    What's Aggregate Demand?

  6. Economics

    What Does Price Level Mean?

    Price level is the average of all current prices for goods and services in an economy.
  7. Economics

    Economics Basics: Supply and Demand

    Investopedia explains: The Law of Demand, The Law of Supply, Supply and Demand Relationship, Equilibrium, Disequilibrium, and Shifts vs. Movement
  8. Economics

    What is Supply & Demand?

  9. Economics

    Do Deflationary Shocks Help Or Hurt The Economy?

    Find out how deflationary shocks can both benefit and hurt consumers and businesses.
  10. Professionals

    Supply and Demand

    Supply and Demand. Focuses on price movements caused by shifts in the demand or supply curve.
  1. Are there any exceptions to the law of demand?

    Learn more about the law of demand and if exceptions exist for different products. Find out more about how price elasticity ... Read Answer >>
  2. Do supply and demand always cancel each other out?

    Learn more about supply and demand and how these factors drive economic activity. Find out more about demand elasticity and ... Read Answer >>
  3. How does the law of supply and demand affect prices?

  4. How does aggregate demand affect price level?

    Read about the relationship between aggregate demand and the general price level, and learn why it is difficult to determine ... Read Answer >>
  5. Is demand or supply more important to the economy?

  6. What is demand-side economics?

    Learn the basic theory of demand side economics, which emphasizes the importance of aggregate demand and supports government ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

  2. Keynesian Economics

  3. Society for Worldwide Interbank Financial Telecommunications ...

  4. Generally Accepted Accounting Principles - GAAP

  5. DuPont Analysis

  6. Call Option

Trading Center