Demand is one of the main forms of expressionsolvent 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, generating competition and setting prices. However, it is worthwhile to understand that the desire to own a commodity that is not backed by cash is not a demand.
This economic category has a directproportional 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 product has 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 a 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 a given 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 increases and, accordingly, the interest rate level. The consequence is a decrease in demand. |
The effect of wealth - rising prices cause a decline in purchasing power.the ability of real financial assets (stocks, bonds, vouchers, etc.) As a result, there is a decrease in people's incomes and a decrease in their purchasing power. | |
Effect of import purchases - an increase in the price of goods of national producers reduces the demand for them. Consumers tend to satisfy their needs by purchasing imported, cheaper analogs. | |
Non-price factors | Change in consumer income - an increase in the income level of a person allows him to spend more money on purchasing goods and services; demand is growing. The reverse of the demand affects the decline in income. |
Change in investment costs - increase in the amount of investment (investment demand)directly depends on the reduction of the interest rate, on the reduction of the level of taxes and deductions, the effective use of production capacities, the introduction of know-how, etc. | |
Change in total public expenditure - with the growth / decrease in the costs of the state mechanism for the acquisition of goods, a process of increasing / decreasing demand occurs. | |
The change in costs attributable to net exports - this is influenced by the level of inflation within the country, the terms of foreign trade and changes in the incomes of foreign consumers. |
