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Demand is the most important component of market development
Demand is one of the main forms of expressing a solvent demand. This is the price that the consumer is willing to pay for the goods he needs in a certain place at a certain time. Demand creates supply. These two components are the basis for the functioning of any market, creating competition and setting prices. However, it is worthwhile to understand that the desire to have a commodity that is not backed by cash is not a demand.
This economic category is directly proportional to the price. In ideal economic conditions, consumer demand is a category that will be higher the lower the price for the benefit we need. And, conversely, at a high level of the established price, the demand for the goods will fall. This dependence is a law of demand.
The motive for changing the level of demand can be one of three reasons:
2. if the goods have a low cost, then the purchasing power of the consumer increases;
3. If the market is filled with this product, then the usefulness of the product is reduced, and the person is ready to purchase it only at a low cost.
At the same time, the quantity of goods that people want to buy at a given time period at this price is the volume of demand.
Factors affecting aggregate demand
Factors | What is included in their composition |
Price Factors | Interest rate effect - with an increase in the prices of any goods, the amount of loans and, consequently, the interest rate level increases. The consequence is a decrease in demand. |
The effect of wealth - the rise in prices causes a decline in the purchasing power of real financial assets (stocks, bonds, vouchers, etc.). As a result, people's incomes are reduced and their purchasing power is reduced. | |
The effect of imported purchases - an increase in the price of goods of national producers reduces the demand for them. Consumers tend to meet their needs by purchasing imported, cheaper analogs. | |
Non-price factors | Changing the income of the consumer - increasing the income level of a person allows him to spend more money on purchasing goods and services, i.e. Demand is growing. The reverse of the demand affects the decline in income. |
A change in investment spending - an increase in investment (investment demand) is directly related to a reduction in the interest rate, from a reduction in the level of taxes and deductions, the effective use of production capacities, the introduction of know-how, etc. | |
Change in total government spending - with the increase / decrease in the costs of the state mechanism for the acquisition of goods, the process of increasing / decreasing demand occurs. | |
The change in expenses attributable to the volume of net exports is influenced by the level of inflation within the country, the terms of foreign trade and changes in the incomes of foreign consumers. |
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