The Power Of Demand

Aggregate demand determines the overall level of economic activity. It is really quite evident that the concept of demand is ever-present throughout the world, as every person has desires and necessities, or wants and needs. When it comes to demand, the word can have many different meanings, but in economics, demand is simply the various quantities of a good or service that people will be willing and able to purchase at various prices during a period of time. This definition, in turn, has lead economists to formulate a law that envelops the basic behavior of an economy in regards to the price of a product, stating that as the price of a product falls, other things being equal (ceteris paribus), the quantity demanded increases, and vice-versa. It is important to note that this rule can be shown as a tabular representation such as a supply schedule, or in a graphical representation such as a demand curve, which provides an excellent visual understanding of the inverse relationship between the price of a product and the quantity that is wanted or needed (demanded) by consumers in a given economy per unit of time. The demand curve represents the entire demand for the product (various quantities at various possible prices), whereas a point on that curve represents the quantity demanded of that good at one specific price, hence, demand and quantity demanded are two singular notions. To illustrate this difference, it can be shown that a change in price of a product will result in a change in a point along the curve and the quantity demanded. 

While the overall curve would shift from a change in overall demand because of the five distinct non-price determinant factors. 

Tastes

Number of Buyers

Income

Prices of Related Goods

Consumer Expectations

Substitute Good

Complementary Good

Since I grew up in a city called Subang Jaya, I have many kinds of friends, some of them come from a rich family and some come from a poor family. Some of their parents even owned a big company and some just owned a stall that sells food in the market. Well today I’m going to give an example on this friend of mine, whose father owns a meat/vegetable stall in the market. Their entire families would spend most of their time working in the market, much like a family business, while the component of demand for their meat products was definitely at large and taken into consideration. They would have many products such as various vegetables and animals that they would sell on the market. There were many factors affecting their respective quantities demanded, which is why they had to work with these factors in mind to sell as much of their product as possible.

For instance, the quantity demanded for their meat products such as steak and beef would be influenced by the incomes of consumers. If the incomes of their consumers increased, then they could buy more ‘normal goods’ such as steaks than they normally would have without sacrificing anything else. Alternatively, an increase in income could also affect their quantity demanded for beef or other ‘inferior goods’, since people may switch to steak or other things instead because they can afford it. This decision must be taken into consideration, especially since a decrease in income could easily reduce quantities demanded of steak and may increase quantities demanded of beef, and so on.

Secondly, prices of related goods can play a role in their decisions. Since people can often substitute between things like peas and corn, then if the price of one increases, the quantity demanded for the other increases, and vice versa because they are substitutes. Conversely, goods that complement each other will see a parallel increase or decrease in quantity demanded, and independent goods will have no relationship whatsoever. 

Next, tastes and preferences can affect what quantities are demanded, for example, if a new vegetarian diet became popular, then the quantity demanded for the farm vegetables would increase and the quantity demanded of meat would decrease, so less cattle would be slaughtered per say.

Inclusively, expectations of the consumers affect what quantities are demanded, like if they expected a rise in the price of tomatoes (from possibly a smaller stock that year), or a future increase in wages, they may stock up on tomatoes now.

Lastly, since Subang Jaya is a big city, there is a bigger population, and so the quantity demanded of these farm products is higher. Since there are more houses currently being built, therefore the population will definitely increase. When the population increases, more people will need the food products, and quantity demanded will of course increase.

These are all factors that can play a huge role in the food industry and change means of production in terms of the quantities demanded of certain products. It is important to remember that a change in demand will result in price and quantity changing in the same direction as the demand! 

-Ivan Kon