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Dictionary / Demand


Last updated August 24, 2023

What is demand?

Demand refers to the quantity of a product or service that consumers are willing and able to purchase at a given price and within a specific time period. It represents the desire or need for a particular product in the market. Demand is measured in terms of the quantity of a product or service that consumers are willing to buy at various price points, often depicted in a demand curve that shows the relationship between quantity and price.

What factors influence demand?

There are five main factors that influence demand:

  • Product/service price
  • Buyer’s income
  • Prices of substitute goods
  • Consumer preferences
  • Consumer expectation for a change in price

What is the relationship between demand and price?

This relationship is often described by the law of demand. This states that as the price of a product decreases, the quantity demanded by consumers increases, and vice versa. This inverse relationship is a cornerstone principle in understanding how changes in price affect consumer behavior and overall market dynamics.

Why is demand important to understand?

Companies often invest substantial funds to assess the extent of public interest in their products. They seek insight into the quantity of goods they can successfully sell at various price points. Flawed estimations can lead to missed sales opportunities if demand is underestimated or surplus inventory costs if demand is overestimated.