What Are The Determinants Of Market Demand?

What Is Market Demand?

Demand is the willingness and ability of an individual consumer to purchase a good or a service.  You see, this definition relates to an individual consumer alone.  Market demand relates to the whole market.  As a result, market demand is the aggregated demand of all the individual consumers.  We will talk about the determinants of market demand a little later.

Please note that it is in turn divided into two major segments:  primary and selective.  When you talk of primary demand, you refer to all the goods found in one market segment, for example cars, houses, phones etc.

For selective demand, you determine the demand for a particular company’s product or brand within that market.  These two statistics give valuable insight for companies as they seek to find out what is their market share.

The Law Of Demand And Market Demand

As stated earlier, market demand is simply the sum of all individual consumers in the market.  It therefore follows the same law of demand, only at a market level.  For those who study economics, you will note that there is an inverse relationship between price and demand.

The higher price of the lower the demand and the lower the price the higher the demand.  This still holds true in with market demand.

However, there are a few exemptions to this rule.  They include Geffen goods and Luxury goods.  These two classes do not follow this law.  Geffen good experience in a drop in the demand with a fall in price and Luxury goods experience a rise in market demand with a rise in price.

Market Size And Market Demand

One of the biggest determinants of market demand is the size of the market.  The number of individuals in the market determines how big the market is.  The larger the market size, the larger the potential market demand.

This makes sense since market demand is the sum of the individual market demands.  It therefore follows that if have a lot of individual demand, the market demand will subsequently increase.

In the long run, it is important to pay attention to the rate of growth of the market as this will alter the market demand figures.

Average Of Individual Demand Elements

Another important determinant of market demand deals with the average of individuals within the market.  Let us keep in mind that the individual demand is added up to make the market demand.  It therefore follows that whatever the individual demands ultimately ends up affecting the total market demand.

However, we use the average of individual demand for simplicity sake.  It would be very hard to take the exact consumption data of a market size of even 1000 people and use it.

Whatever therefore affects the individual demand ends up affecting the market demand.  Therefore, factors that affect the demand of individuals are important determinants of market demand.

Factors such as price, price of related goods, tastes and preferences and expectation of future changes will end up affecting overall market demand.