Demand is the relationship between the price and the amount of goods that consumers want and can purchase at a specific price for a certain period of time. It is necessary to distinguish between the concepts of demand and the amount of demand. The quantity demanded is the amount of the good that the buyer is willing to purchase at a particular price, and the total demand for the good is the consumer's willingness to buy the good at different prices.
Instructions
Step 1
Any price that is set by the selling company will somehow affect the level of demand for products. From the demand curve, you can find out how much a product will be sold on the market at different prices over a certain period of time. In a normal situation, price and demand are inversely proportional: the higher the price, the lower the demand. Accordingly, the lower the price, the higher the demand. By raising the price of the product, the company will sell a smaller amount of the product. Many consumers on a budget, when faced with a choice of alternative products, will be less likely to buy those that are too high for them.
Step 2
The sensitivity of demand in relation to price changes is characterized by the elasticity indicator. This indicator determines by what percentage one variable can change when another variable changes by 1%. If demand practically does not change under the influence of a small change in price, then it is inelastic. If at the same time the demand changes significantly, then it is considered to be elastic. Knowing the elasticity of demand for a product put on the market, an entrepreneur is able to determine in advance the reaction of consumers to price changes. In addition, the elasticity indicator in assessing trends serves as a measure of the change in the overall costs of the organization, depending on the nature of the demand for the product.
Step 3
The magnitude of the current demand can be determined by comparing the volume of goods, their total cost of sale in a given market and identifying the number of potential consumers of this product living in the area where the market is located. It is possible to determine prospective demand using forecasts, through the use of various forecasting methods, taking into account the existing trends in demand, the action of various factors of the anticipated marketing efforts in the future. The assessment of the elasticity of demand on the price will show the maximum price at which the product can be accepted by the market for a certain volume of sales.
