In economics, demand

is the desire to own anything, the ability to pay for it, and the willingness to pay. The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.
More precisely and formally the Economics Glossary defines demand as the

want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services
Demand is not simply a quantity consumers wish to purchase such as '5 oranges' or '17 shares of Microsoft', because demand represents the entire relationship between quantity desired of a good and all possible prices charged for that good. The specific quantity desired for a good at a given price is known as the quantity demanded. Typically a time period is also given when describing quantity demanded. Demand - Examples of Quantity Demanded: When the price of an orange is 65 cents the quantity demanded is 300 oranges a week.
75 cents - 270 oranges a week 70 cents - 300 oranges a week 65 cents - 320 oranges a week 60 cents - 400 oranges a week Here in case of oranges as the price decreases, demand increases.

If Barista lowers their price of a tall coffee from $1.75 to $1.65, the quantity demanded will rise from 45 coffees an hour to 48 coffees an hour.

LAW OF DEMAND
The relationship of price and quantity demanded can be exhibited graphically as the demand curve. The curve is generally negatively sloped. The curve is two-dimensional and depicts the relationship between two variables only: price and quantity demanded. All other factors affecting demand are held constant. However, these factors are part of the demand curve and influence the location of the curve. In many economics graphs, such as that of the demand curve, the independent variable is plotted on the vertical axis and the dependent variable on the horizontal axis. Demand curves are drawn as 'downward sloping' due to this inverse relationship between price and quantity demanded.

Factors affecting law of demand

Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the more common factors are: Good's own price: The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices.Generally the relationship is negative meaning that an increase in price

will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it.[8] Or if the price of a new piece of equipment is high a firm may decide to repair existing equipment rather than replacing it.

Price of related goods: The principal related goods are complements and substitutes. A
complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up the quantity demanded of the other good goes down

Personal Disposable Income: In most cases, the more disposable income (income after
tax and receipt of benefits) you have the more likely you buy.[12][13]

Tastes and preferences: The greater the desire to own a good the more likely you are to
buy the good.[14] There is a basic distinction between desire and demand. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one's desires into effect. It is assumed that tastes and preferences are relatively constant. Consumer expectations about future prices and income: If a consumer believes that the price of the good will be higher in the future he is more likely to purchase the good now. If the consumer expects that her income will be higher in the future the consumer may buy the good now. In other words positive expectations about future income may encourage present consumption.[15]

LIMITATIONS OF LAW OF DEMAND

Generally, the amount demanded of good increases with a decrease in price of the good and vice versa. In some cases, however, this may not be true. Such situations are explained below.
[edit]Giffen

goods

As noted earlier, if there is an inferior good of which the positive income effect is greater than the negative substitution effect, the law of demand would not hold. For example, when the price of potatoes (which is the staple food of some poor families) decreases significantly, then a particular household may like to buy superior goods out of the savings which they can have now due to superior goods like cereals, fruits etc., not only from these savings but also by reducing the consumption of potatoes. Thus, a decrease in price of potatoes results in decrease in consumption of potatoes. Such basic good items (like bajra, barley, grain etc.) consumed in bulk by the poor families, generally fall in the category of Giffen goods.

[edit]Commodities

which are used as status symbols

Some expensive commodities like diamonds, air conditioned cars, etc., are used as status symbols to display ones wealth. The more expensive these commodities become, the higher their value as a status symbol and hence, the greater the demand for them. The amount demanded of these commodities increase with an increase in their price and decrease with a decrease in their price. Also known as a Veblen good.
[edit]Expectation

of change in the price of commodity

If a household expects the price of a commodity to increase, it may start purchasing greater amount of the commodity even at the presently increased price. Similarly, if the household expects the price of the commodity to decrease, it may postpone its purchases. Thus, law of demand is violated in such cases. In the above circumstances, the demand curve does not slope down from left to right instead it presents a backward sloping from top right to down left as shown in diagram. This curve is known as exceptional demand curve.
[edit]

Demand Schedules:
A demand schedule is a table which lists the possible prices for a good and service and the associated quantity demanded. The demand schedule for oranges could look (in part) as follows:

The buyers' demand is represented by a demand schedule, which lists the quantities of a good that buyers are willing to purchase at different prices. An example of a demand schedule for a certain good X is given in Table 1 . Note that as the price of good X increases, the quantity demanded of good X decreases.

TABLE 1 Demand Schedule for Good X Price of good X Quantity demanded $0 5

2 4 6 8 10

4 3 2 1 0

Demand curve
The demand curve is the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. It is a graphic representation of a demand schedule. The demand curve for all consumers together follows from the demand curve of every individual consumer: the individual demands at each price are added together. Demand curves are drawn as 'downward sloping' due to this inverse relationship between price and quantity demanded. The demand curve usually slopes downwards from left to right; that is, it has a negative association (for two theoretical exceptions, see Veblen good and Giffen good). The negative slope is often referred to as the "law of demand", which means people will buy more of a service, product, or resource as its price falls. The demand curve is related to the marginal utility curve, since the price one is willing to pay depends on the utility. However, the demand directly depends on the income of an individual while the utility does not. Thus it may change indirectly due to change in demand for other commodities.

Figure 1 Demand curve for good X

The vertical axis in Figure depicts the price per unit of good X measured in dollars, while the horizontal axis depicts the quantity demanded of good X measured in units of good X.The negative slope downward to the right shows the inverse

relationship between the price of commodity X and its demand. We see that downward movement from O to P shows the fall in price and rise in demand whereas upward movement from P to O shows the rise and consequent fall in demand.

SHIFTS IN DEMAND CURVE

A shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though price remains the same
Change in the quantity demanded: A change in the quantity demanded is a movement along the demand curve due to a change in the price of the good being demanded. As an example, suppose that in Figure 1 the current market price charged for good X is $4 so that the current quantity demanded of good X is 3 units. If the price of good X increases to $6, the quantity demanded of good Xmoves along the demand curve to the left, resulting in new quantity demanded of 2 units of good X. The change in the quantity demanded due to the $2 increase in the price of good X is 1 less unit of good X. Similarly, a decrease in the price of good Xfrom $4 to $2 would induce a movement along the demand curve to the right, and the change in the quantity demanded would be 1 more unit of good X. A change in demand is represented by a shift of the demand curve. As a result of this shift, the quantity demanded at all prices will have changed. Figures 2 (a) and 2 (b) present just two of the many possible ways in which the demand curve for

good X might shift. In both figures, the original demand curve is the same as in Figure 1 and is denoted by DA . In Figure 2 (a), demand curve DA has shifted to the left to the new demand curve DB . The leftward shift means that at all possible prices, the demand for good X will be less than before. For example, before the shift, a price of $4 corresponded to a quantity demanded of 3 units of good X. After the shift left, at the same price of $4, the quantity demanded is less, at 1 unit of good X. In Figure 2 (b), demand curve DA has shifted to the right to the new demand curve DC . The rightward shift means that at all possible prices, the demand for good X will be greater than before. For example, before the shift, a price of $6 implied a quantity demanded of 2 units of good X. After the shift, at the same price of $6, the quantity demanded is greater, at 4 units of good X.

Figure 2 A change in demand: Leftward and rightward shifts of the demand curve for good X

REASONS OF SHIFT IN A DEMAND CURVE

Reasons for a change in demand. It is important to keep straight the difference between a change in quantity demanded, or a movement along the demand curve, and a change in demand, or shift in the demand curve. There is only one reason for a change in the quantity demanded of good X: a change in the price of good X; however, there are several reasons for a change in demand for good X, including: 1. Changes in the price of related goods: The demand for good X may be changed by increases or decreases in the prices of other, related goods. These related goods are usually divided into two categories called substitutes

and complements. A substitute for good X is any good Y that satisfies most of the same needs as good X. For example, if good X is butter, a substitute good Y might be margarine. When two goods X and Y are substitutes, then as the price of the substitute good Y rises, the demand for good X increases and the demand curve for good X shifts to the right, as in Figure 2 (b). Conversely, as the price of the substitute good Y falls, the demand for good X decreases and the demand curve for good X shifts to the left, as in Figure 2(a). A complement to good X is any good that is consumed in some proportion to good X. For example, if good X is a pair of shoelaces, then a complement good Y might be a pair of shoes. When two goods X and Y are complements, then as the price of the complementary good Y rises, the demand for good X decreases and the demand curve for good X shifts to the left, as in Figure 2 (a). Conversely, as the price of the complementary good Y falls, the demand for good X increases and the demand curve for good X shifts to the right, as in Figure 2 (b). 2. Changes in income: The demand for good X may also be affected by changes in the incomes of buyers. Typically, as incomes rise, the demand for a good will usually increase at all prices and the demand curve will shift to the right, as in Figure 2 (b). Similarly, when incomes fall, the demand for a good will decrease at all prices and the demand curve will shift to the left, as in Figure 2 (a). Goods for which changes in demand vary directly with changes in income are called normal goods. There are some goods, however, for which an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand. Goods for which changes in demand vary inversely with changes in income are called inferior goods. For example, consider the two goods meat and potatoes. As incomes increase, people demand relatively more meat and relatively fewer potatoes, implying that meat may be regarded as a normal good, and potatoes may be considered an inferior good. 3. Changes in preferences: As peoples' preferences for goods and services change over time, the demand curve for these goods and services will also shift. For example, as the price of gasoline has risen, automobile buyers have demanded more fuel-efficient, economy cars and fewer gas-guzzling, luxury cars. This change in preferences could be illustrated by a shift to the right in the demand curve for economy cars and a shift to the left in the demand curve for luxury cars. 4. Changes in expectations: Demand curves may also be shifted by changes in expectations. For example, if buyers expect that they will have a job for many years to come, they will be more willing to purchase goods such as cars and homes that require payments over a long period of time, and therefore, the demand curves for these goods will shift to the right. If buyers fear losing their jobs, perhaps because of a recessionary economic climate, they will demand fewer goods requiring long-term payments and will therefore cause the demand curves for these goods to shift to the left.