Topic 3: demand

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Most people think of demand as being the desire for a certain economic product. That desire must be coupled with the ability and willingness to pay. Effective demand, that is desire plus ability and willingness to pay, influences and helps to determine prices.

In economics the relationship of demand and price is expressed by the Law of Demand. It says that the demand for an economic product varies inversely with its price. In other words, if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high.

The correlation between demand and price does not happen by chance. For consumers price is an obstacle to buying, so when prices fall, the more consumers buy.

The demand for some products is such that consumers do care about changes in price when they buy a great many more units of product because of a relatively small reduction in price. The demand for the product is said to be elastic.

For other products the demand is largely inelastic. This means that a change in price causes only a small change in the quantity demanded. A higher or lower price for salt, for example, probably will not bring about much change in the quantity bought because people can consume just so much salt.

Even if the price were cut in half, the quantity demanded might not rise very much. Then too, the portion of a person's yearly budget that is spent on salt is so small that even if the price were to double, it would not make much difference in the quantity demanded.