Meaning of Demand

In everyday language "demand" is often used loosely to mean any want or wish. In economics the word carries a much sharper meaning, and this chapter — a core unit of the Gujarat Std 11 Commerce Economics (GSHSEB) syllabus — builds the whole theory of the consumer's side of a market on that precise meaning.

Demand is the quantity of a commodity that a consumer is willing AND able to buy at a given price, during a given period of time, other things remaining the same (the Latin tag ceteris paribus is used throughout this chapter for exactly this condition). Three things must all hold together before a want becomes "demand":

1. Desire to possess the good.
2. Willingness to spend money on it.
3. Ability to pay — the purchasing power to back the desire.

A millionaire's wish to own a private jet is a desire; only when backed by the money and the willingness to actually part with it does it become demand in the economic sense. This is why a poor person's wish for a car is not "demand" — the ability-to-pay leg is missing — while the same wish, backed by money, becomes demand instantly.

Demand is always expressed with reference to a price and a time period — "demand for 10 kg of wheat at ₹25/kg per month" is a complete statement; "demand for wheat" alone is not, because quantity demanded changes as price changes. This price-and-time anchoring is what allows demand to be represented as a schedule, a function and a curve, all covered later in this chapter.

Individual demand is the quantity one particular buyer demands at various prices; market demand is the horizontal summation of every individual buyer's demand in the market at each price — it is market demand, not any one individual's, that interacts with market supply to fix the equilibrium price (covered in the next chapter, "Supply").