Demand. The basics

Demand is a pretty fundamental part of Economics. Put simply, demand is how much stuff people want at different price levels.

More formally: demand is the level of goods and services consumers are willing and able to purchase at different price levels.

Think about your demand for something. Generally, the higher the price, the less of a good or service you would be prepared to buy. And we can take this idea into an economic concept known as the law of demand. 

“The law of demand states that the higher the price of a good or service, the less consumers will demand of it.”

Indeed, there is an inverse relationship between price and quantity demanded. The relationship is inverse in that as one goes up, the other goes down. As price rises, quantity demanded will fall — and vice versa.

Let’s go through a hypothetical example of this using the price and quantity demanded for waterbottles in an economy.

At a price of $2, waterbottles are relatively cheap so people are keen to snap them up. For an individual, at a price of $2, they will demand 20 waterbottles. They’ll buy some for now and some for later — it’s such a great deal!

But if the price rises, consumers will be less likely to buy waterbottles. In fact, they will no longer buy 20 waterbottles. If price rises to $10, they may only be willing and able to buy four waterbottles as it’s more expensive. 

We could create a table like the one on the right. All the numbers are made up — it’s a hypothetical example after all.

This table neatly displays the law of demand. As price rises, quantity demand (often abbreviated to QD) will fall. And from this table, known as a demand schedule, we can construct the actual demand curve. Check it out below.

If you’re keen on more, there’s a video on this too (see below).