Business Economics for Entrepreneurs
Introduction to Demand
Written by Bobby Jan for Gaebler Ventures
As an entrepreneur, you probably spent some time trying to figure out how demand works, especially for the products that you are selling. This article will teach you the very basics of demand.
Demand is the lifeblood of entrepreneurs, determining what products and services sell.
Naturally, demand is top of mind for most hard-working entrepreneurs like you.
Lucky for you, economists are also concerned with the nature of demand; perhaps you can learn something from them.
What exactly is this demand thing?
In economics, demand is defined as the quantities of a good that consumers are willing and able to purchase at various prices during a given period of time.
First, to qualify as a unit of demand, consumers must be able to purchase good--that is, consumers must be able to afford the good. Almost everybody wants a private jet, but, sadly, those who cannot afford it simply do not contribute to the demand for private jets.
Second, those who have the resources to make a purchase must be willing to make the purchase. If you start a cookie business making some of the worst cookies in the world, it doesn't matter how cheap you are selling them for as long as those who are able to make a purchase are not willing to make a purchase.
Third, demand must refer to a given period of time. If I told you that demand for your product at county X is $100,000 dollars without specifying the time period, how useful would the information be to you? Is it $100,000 a year or a week?
Fourth, demand represents the quantities consumers would purchase at various prices. Intuitively, for most goods, as you lower price, more will be sold and as you increase price, less will be sold.
A demand schedule is simply a list of the quantities that would be purchased at various prices. You may use a demand schedule to help you with pricing. Here is a fictional example of a demand schedule:
With the help of a demand schedule, you may construct a demand curve. A demand curve graphically illustrates the relationship between price and the quantity demanded at each price. For example, with the previous demand schedule, you only know the quantities purchased per day at $200, $150, $50, $25, and 0, but not at any price between these numbers. A demand curve will help you infer the quantities demanded at each price. Here is an example of a demand curve:
Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.
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