DEMAND. In economics, as in trade, demand denotes the extent of the outlet or market which the wants and preferences of buyers, joined to their purchasing power, establish for particular goods or services. Demand is always relative to price, and the character of the relation is commonly exhibited in treatises on economics either arithmetically (in "demand schedules") or dia grammatically (in "demand curves") by showing in sequence the amount of a commodity which supposedly would be pur chased at each price in an ordered series of prices. The inac curate statement that "an increase of prices will diminish de mand" really means that an increase in price will diminish the volume of potential sales. The statement "an increase of demand will raise the price" means that a shift to the right in the position of the demand curve tends to raise the price. The relationship between price and the amounts which buyers will purchase is generally inverse; that is, sales volume is commonly larger at lower than at higher prices. This elementary theorem rests in the first instance upon common observation of the facts of the market, but it can be explained by or related to the way in which households and individual consumers apportion their expenditures. Most goods serve a variety of purposes, and these purposes differ greatly in importance. If the price of a commodity increases, consumers generally cannot continue to buy it in undiminished quantities without cutting into their expenditures for other goods so deeply as to sacrifice some of their relatively important uses. They will prefer to give up some relatively unimportant uses of the commodity which has increased in price, and will therefore reduce their purchases of it.
The extent to which a change of price affects the quantity of a commodity which can be sold is called the elasticity of demand. The greater the ratio of the proportionate change in potential sales volume to the proportionate change in price, the greater is said to be the elasticity of demand. This ratio is called the co-efficient of elasticity. Thus if a large wheat or cotton crop will sell for less in the aggregate than a smaller crop would have sold for, within certain limits, the demand for wheat and cotton is comparatively inelastic, and the co-efficient of elasticity is less than unity. In general, the demand for neces saries, for goods for which there are no substitutes, and for goods the use of which creates a habit is relatively inelas tic. The elasticity of the demand for any commodity is rarely the same over any considerable range of prices. The demand for salt, for example, would be much less elastic at high than at low prices. H. L. Moore and other scholars, by making skilful use of statistics of the production and prices of certain commodities and of the general movements of prices, have been able to find formulae which express approximately the relations (for the time being) between the prices of those commodities and the demand for them. These empirical laws of demand add materially to our eco nomic knowledge, and promise to be useful in forecasting the probable effects of increased or decreased production upon prices. The demand for any one commodity is dependent not only upon its own price but upon the prices of other goods as well. There are many instances of joint demand, as where a falling off of the price of fresh fruit leads to increased purchasing of sugar, and of competing demand, as where a reduction of the cost of electric lighting leads to a smaller use of illuminating gas. So far, indeed, as a change of the price of any commodity whatsoever affects the amount of money expended for it, the demand for other goods must be affected. The demands for labour, land, and productive instruments are derived from the demands for their products. In some instances the relation between the demand for consumer's goods and the derived demand for productive goods and services is fairly direct and simple. More often, however, this relation is ex ceedingly intricate, because productive agents can be combined in various ways and in various proportions. What the most eco nomical combination of productive agents for any one purpose is will depend upon the demand not for one but all of their possible products.
See also ECONOMICS ; SUPPLY AND DEMAND ; PRICE. (W. I. K.)