Economic Demand Definition, Determinants and Types

Economic demand is what drives trade. Without consumer demand, companies are unwilling to supply products, because there is no revenue or profitability by entering the market.

If you are a job seeker or employee, finding an industry with a high economic demand can advance your job prospects and provide a way to leverage your skills.

Table Of Content

1 What is the definition of economic demand?
2 Why is understanding economic demand important to you?
3 Determinants of economic demand
3.1 Hope
3.2 Tastes and fashion
3.3 Price
3.4 Prices of related services or goods
3.5 Income
3.6 Lower Barang
3.7 Number of buyers in the market
3.8 Replacement items
4 Different types of economic demand
4.1 Market and individual demand
4.2 Enterprise and industry demand
4.3 Short-term and long-term demand
4.4 Market demand and market segments
4.5 Demand for perishable and durable goods
4.6 Derived and autonomous requests
4.7 Income demand
4.8 Asking price
4.9 Cross demand

What is the definition of economic demand?

Economic demand or economic demand is a principle that refers to consumer demand for a particular product, as well as the price they are willing to pay for that product. While demand varies widely due to external factors, the basic concept is that economic demand will decline as prices increase.

As a graphical representation, the demand curve slopes downwards from left to right, showing low demand at high prices and high demand at low prices.

The economy’s demand curve is inversely proportional to the supply curve, which slopes upward from left to right, indicating an increase in supply as prices get higher. This is due to the fact that a business will produce more products or goods when it leads to increased profitability.

Why is understanding economic demand important to you?

If you work in finance, accounting, or economics, economic demand is the reason you have a job and your company does business.

Understanding demand economics takes a bit of study, but once you have the principles in hand, you can apply your knowledge to help you excel at an interview, explain basic ideas to coworkers and improve your understanding of your job.

Another key principle of demand economics as it relates to a position you may hold or want is that it allows you to predict how much of a good will be produced or when is the best time to cut production.

This can save your company money in the short and long term, improve company finances and increase cash flow to other business areas outside of production.

In addition to the impact of economic demand above on your job, determining economic demand is one of the main expenses of companies and businesses.

If economic demand projections are incorrect, it can miss forecasts, lead to increased overhead costs or result in net losses.

In a simpler sense, demand determines the market for your company’s products. This makes understanding economic demand a necessity for many professionals in a variety of industries.

Determinants of economic demand

The law of demand states that—all other things being equal—the quantity demanded falls as the price rises. However, external factors can play a role in economic demand.

These factors are known as determinants of economic demand. Understanding how these determinants play a role in economic demand can help you as an employee or job seeker to help you estimate projected sales and other important factors that affect revenue.


Expectations play a large role in economic demand. To illustrate this, look at house prices. Consumers will buy a house and continue to buy it at its current price (even if it increases daily) if they expect the price to rise in the future.

In their minds, they are getting more value for their home by buying it at its current price and allowing its value to continue to grow.

The same can be said for price drops, but the other way around. If house prices fall, consumers are less likely to buy, because they believe prices will continue to fall.

Taste and fashion

Consumers are a fussy bunch. Over time, their tastes, preferences, emotions and desires change. If the change favors a new product, demand increases.

When preferences conflict with a particular product, demand decreases. Due to these changing tastes, companies are always looking for ways to increase their brand liking through marketing and advertising.

Examples include companies with changing logos or new slogans to connect with their target market.


Like all other factors, price is the main determinant of whether a consumer buys a product, i.e. economic demand. While there are outliers who will pay a premium price based on the quality of the goods, price remains the most vital aspect of demand.

Therefore, the company you work for is always trying to set a price point to maximize profitability without hurting economic demand.

Prices of related services or goods

When the price of a good rise, the demand for that good falls. However, this price increase can affect complementary goods as well. For example, if you buy a Dell computer and Apple puts out another computer that makes your model obsolete, your demand and that of others will drop.

The same idea often occurs in the automotive industry. When gas prices rise, demand for efficient cars increases, while demand for more fuel-intensive cars will decrease.


If income rises, consumers have greater purchasing power. In most cases, they will buy more of the product. Likewise if their income decreases.

Consumers will have less purchasing power, and demand will decrease. Marginal utility is also a concept you should consider in the relationship between demand and income.

This idea states that consumers will not buy products in proportion to the increase in their income.

For example, a consumer who suddenly has more income can buy more steaks. However, they don’t need 50 steaks at a time when one or two will fulfill their wish. This is how you can think of marginal utility and a wonderful way to explain it to a coworker or client.

inferior goods

The demand for inferior goods often goes hand in hand with income. When incomes rise, demand for non-brand-name products falls because consumers place a higher perceived value on well-known brands.

When incomes fall, the demand for inferior goods increases as consumers find products to meet their needs rather than buying products only with brand recognition.

Number of buyers in the market

The number of buyers in a given market can also drive demand. When more buyers are in the market for a good or service, demand rises. This principle is also known as aggregate demand.

Replacement item

If the price of a product rises, it can force consumers to buy substitutes. For example, an increase in the price of Indomie may increase. This may decrease the demand for consuming Indomie, but increase the demand for Sedap noodles with a similar taste at a lower price.

However, this may not affect all customers, especially those with strong brand loyalty.

As a consumer, you have little control over the determinants of demand. However, knowing what causes demand to fluctuate can help you see the bigger picture within your company or the market as a whole.

Various kinds of economic demand

Companies and businesses spend a lot of their budgets understanding the demand for their products. This allows them to push their products to other consumers or businesses without losing money due to overproduction or other factors.

As an employee, understanding what type of demand your company has is good business practice. Here’s a quick look at the different types of economic demand.

Market and individual demand

Individual demand is the economic demand for a product at a given price by one consumer. Customer taste, perceived quality, and brand loyalty all influence individual demand.

Market demand, also known as aggregate demand, is the total economic demand of all individual demands in a given market.

Enterprise and industry demand

The demand for a product at a certain price over a period of time from one entity is known as firm demand. Industry demand is the total aggregate demand for products in an industry.

Firm demand is often expressed as a percentage of industry demand to measure market share. For example, the demand for Pepsi products is the demand for the company, but is only a percentage of the total demand for the beverage industry.

Short-term and long-term demand

As the name implies, the short-run demand for a product is the economic demand for a shorter period of time. Short-run demand is elastic, meaning that it reflects changes in prices, fashions, and needs more drastically than long-run demand.

For example, winter clothing is only worn during the colder months, creating a short-term demand compared to clothing worn all year round.

Prices make short-term demand fluctuate drastically. Long-term demand refers to consumer demand for a product over a longer time span.

This demand has not changed much with respect to price. In contrast, long-term demand changes based on promotion and advertising by the firm, availability of substitutes and competition.

Market demand and market segments

Market demand is the aggregate demand from all consumers who buy the same type of product. Market segment demand, on the other hand, refers to a specific subset of market demand, namely age, race, gender and various other demographic factors.

Demand for perishable and durable goods

A durable good is any product that can be used more than once in its life cycle. Perishable goods are goods that can only be used once.

While both types of goods meet consumer demand, durable goods have more perceived value in the long run.

In addition, durable goods also require replacement from time to time (cars, shoes, clothes), so market demand persists after the initial purchase.

Derived and autonomous requests

Autonomous demand, also known as direct demand, is when the demand for a product is independent of all other goods in the market. Derived demand is economic demand that is directly correlated with the demand for other products. For example, if the demand for tires increases, the demand for rubber will increase proportionally.

Income demand

Income is a determinant of economic demand, so it is easy to understand why income has its own type of demand.

Income demand is the willingness of consumers to buy a certain product at a certain income level and price. If income falls, demand falls. If income goes up, demand goes up.

Price request

Asking price refers to the quantity of a certain good that consumers will buy at a certain price. Unlike revenue demand, price demand has an inverse relationship between price and overall demand. When price goes up, demand goes down and vice versa.

Cross request

This type of economic demand centers on the number of substitutes and related products in a given market. When the price of a particular product rises, cross-demand implies that its successor will see an increase in demand. An example of cross-demand is if the price of cow’s milk skyrockets, the demand for almond milk, soy milk, and other milk substitutes will increase.

Demand types vary by industry and company, but personal knowledge and interest in economic demand types will help you understand the mission and goals of your department, company, or potential employer.

However, you don’t have to be an expert in all kinds of demands. Instead, focus your energies and study the things that impact your industry.

Some companies only have to deal with one type of request, while others fall under two or more. Once you identify the type of economic demand from your company or potential employer, you can better understand your job role and how to increase effectiveness and efficiency in your position.

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