Consumer demand and price
Consumer demand is defined as the ‘..willingness and ability of consumers to purchase a quantity of goods and services in a given period of time, or at a given point in time..’. Merely being willing to make a purchase does not constitute effective demand – willingness must be supported by an ability to pay. In short, desire needs purchasing power to turn it into effective demand. Purchasing power is determined by current consumer income (or disposable savings) in relation to the current price level.
The importance of demand
The fundamental assumption in the theory of free markets is that of consumer sovereignty, with consumer demand the dominant market force. Without demand there would be no sales, or sales revenue, and no profit. The greater the demand, the greater the incentive for entrepreneurs to enter a market, and the higher the probability that a market will form.
Determinants of demand
A demand schedule shows the relationship between price and demand over a hypothetical range of prices. For example, the schedule opposite is based on a survey of college students who indicated how many cans of cola they would buy in a week, at various prices.
|PRICE (£)||QUANTITY DEMANDED|
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See: demand curves
See: shifts in demand