The Demand Theory is an economic principle which relates to the relationship between the consumers demand for goods and services and their prices in the market. The Demand Theory acts as the basis for the demand curve, relating to the consumers desire to the amount of goods available. As the availability of a good or service increases, the demand as well as the price equilibrium drops.
Demand is the quantity of a good or a service which is desired by the consumer at a given price within a given time period. People demand goods and services to satisfy their wants.
The demand for a goods depends on two factors:
(1) Its utility to satisfy a want
(2) the consumer’s ability to pay for the goods.
In effect, real demand is only when the readiness to satisfy a want is backed up by the individual’s ability and also the consumers willingness to pay.
Demand theory is one of the most important theories of microeconomics .The Demand Theory aims to answer basic questions about how badly people want things, and also how demand is fluctuated by income levels and satisfaction (utility). Based on the perceived utility of goods and services by consumers, companies adjust the supply available and also the prices charged.
Demand comprises of factors such as consumer preferences, tastes, choices, etc. Calculating demand in an economy is, therefore, one of the most important decision-making variables that a business must analyze if it is to survive and grow in a competitive market. The market system is governed by the laws of supply and demand, which helps to determine the prices of goods and services. When supply is equal to demand, prices are said to be in a state of equilibrium. When demand is higher than supply, prices rise to reflect scarcity. On the other hand, when demand is lower than supply, prices fall due to the surplus.
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