Do you know what the theory of demand is? That’s what we’re going to address in this content! But surely, you must have already noticed that on the shelves there are several products that go away quickly and others remain in the same place and this can be explained through the Theory of Demand.
That principle in which economics experts believe, that there is a right way to set the price of a certain good. Economists who defend this theory believe that the consumer is the thermometer that will guarantee whether a certain product is cheaper or more expensive than the others.
Therefore, demand consists of what the customer justifies when buying a particular good or service. The objective of this text is, therefore, to explain what is the Theory of Demand and what is its importance.
What this article covers:
What is the theory of demand?
The Theory of Demand consists of the term that is based on the demand curve, which is based on the desire of the consumer with the quantity of goods available. You know that expression of the law of supply and demand? Not to mention that it is a counter-argument to the theory of Keynesianism, which even today divides economists as to whether this is the right thing to do.
That’s practically it, because economists in favor of this economic principle believe that the more a product is available, the demand for it drops and, consequently, the price.
Many use the theory of demand to establish the price at which each product will be sold, based on the mind of the consumer and also the entrepreneur. When demand and supply are at the same level, experts point out that it has reached the equilibrium stage.
What are the factors that influence demand?
Within this concept, researchers explain the main factors that influence consumer demand. Among them is the satisfaction and will of the consumer’s desires, its usefulness for the daily life of a society, the preference for a certain product and also business interests.
So, if there is a drop in demand for an existing product, the price of it may rise or fall. Therefore, the established price of a good is established by consumer demand.
How is the theory of demand used by companies?
It is with the theory of demand that entrepreneurs will understand what the customer wants from a given product, thus reformulating their target audience and also creating new marketing strategies.
Therefore, they use it to understand what needs to be done to increase demand for purchases without losing the quality of the products and maintaining the price that can generate savings for the customer and profits for the companies. It means that with the theory of demand, companies regulate the market and stimulate the law of supply and demand.
How important is the theory of demand to economists?
The importance of the theory of demand for economists is a way of understanding how consumer behavior can determine the prices of a particular product or service.
In addition, it was based on the construction of Keynesianism, created by John Keynes during the period of the Economic Crisis of 1929, in the United States, which understands that the economy could be interfered with if necessary.
Therefore, Keynes defended affective demand, since the theory of demand could present a negative relationship between the price of a good and its demand.
Are there other theories that complement the theory of demand?
Other theories that complement the theory of demand are the Law of Demand, which says that the price value has to be inversely proportional to the demand for it on the shelves.
With that, you understood the origin of the term “law of supply and demand”, and you will certainly look at commerce in a different way. Now that you have a knowledge about Theory of Demand, share this article to more people who like to study economics.