A detailed understanding of demand theory is essential for success in economics.
Demand is the amount of a good or service that consumers are willing and able to buy at a given price in a given period of time.
This means that demand combines:
- The desire for a product
- A willingness to pay for it
- The ability to pay for it
This definition is important. The demand for something has to be what is known as effective demand. This means that the demand has to be backed by a willingness AND ability to pay. You might want to own a Lamborghini car, but only if you are willing and able to pay for it can the demand be regarded as effective.