In economics, demand is the desire to own anything and the ability to pay for it and willingness to pay^{[1]} (see also supply and demand). The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time. Demand is also defined elsewhere as a measure of preferences that is weighted by income^{[citation needed]}.
Economists record demand on a demand schedule and plot it on a graph as an inverse (downward sloping) demand curve. The inverse curve reflects the relationship between price and quantity demanded: as price decreases, quantity demanded increases. The demand curve is equal to the marginal utility (benefit) curve. If there are no externalities, the demand curve is also equal to the social utility (benefit) curve.
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The demand schedule shows the quantity of goods that a consumer would be willing and able to buy at specific prices under the existing circumstances. Some of the more important factors affecting demand are the price of the good, the price of related goods, tastes and preferences, income, and consumer expectations.^{[2]}
• Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the more common factors are:
The demand function is the mathematical expression of the relationship between demand and those factors that affect the willingness and ability of a consumer to buy goods. For example, Qd = f( P,⎮ Prg Y ) is a demand function where P equals price of the good Prg equals the price of related goods and Y equals income. The vertical bar means that the variables to the right are being held constant. The demand equation is the explicit mathematical expression of the functional relationship. For example, Qd = 325 + P  30 Prg + 1.5Y. 325 is xintercept; it is the repository of all nonspecified factors that affect demand for the product. P is the price of the own good. The coefficient is negative in accordance with the law of demand. Prg may be either a complement or substitute. If a complement, the term would be negative. If a substitute the term would be positive. Income, Y, has a positive coefficient indicating that the good is a normal good. If the coefficient was negative the good in question would be an inferior good meaning that the demand for the good would fall as the consumer's income increased.
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 are present in the intercept. Economics puts the independent variable on the yaxis and the dependent variable on the x=axis. Consequently, the graphical presentation is of the inverse demand function = P = f(Q).
In some cases it is impractical to represent the relationship between price and demand with a continuous curve because of small quantities demanded. Goods and services measured in small units are best represented with a smooth curve. Examples include food measured in calories and leisure measured in minutes. However, when the price of a good is very high in proportion to a consumer's budget there is a need to incorporate this limitation in both the mathematical analysis and the graph representing the relationship. While cars and houses are discrete goods for most people, cheaper goods such as glasses and bicycles are discrete goods only for the very poor. On the national level, nuclear power plants or space stations may be considered discrete goods. The concept is more useful at the individual consumer's level than at the consumers' aggregate level.
The price where the consumer is indifferent between buying an extra unit and not buying an extra unit is called the reservation price (r) after the same term used in auctions. If p is the price of the good and n units of the good are demanded, then r_{n}>=p>=r_{n+1}. For example, John is considering whether to buy a car or not (n=0 or n=1). The price of the car is $15,000 (p=15,000). The determining factor in John's consumption choice is his reservation price, r, simply the maximum price he is willing to pay for the car, reflecting his preferences. If John purchases this car and only this car then r_{1}>=15,000>=r_{2} but if he does not purchase the car then r_{0}>=15,000>=_{1}.
As with other demand curves, discrete demand curves are usually downward sloping and convex, but in the case of discrete goods the curve is shaped like a staircase, reflecting the properties of goods which can only be consumed in qualities of integers. The horizontal lines represent a price at which the consumer is indifferent between buying an extra unit or not. The vertical lines represent a range of prices where the quantity demanded does not vary. Nevertheless, as prices change within these ranges, the consumer surplus may change.
The demand curve is a two dimensional depiction of the relationship between price and quantity demanded. Movements along the curve occur only if there is a change in quantity demanded caused by a change in the goods own price. A shift in the demand curve, referred to as a change in demand, occurs only if a nonprice determinant of demand changes. For example, if the price of a complement were to increase, the demand curve would shift in reflecting a decrease in demand. The shifted demand curve is a new demand equation. ^{[11]}For example assume the demand for livermush in Western North Carolina is Q = 225  P + 20Ps  30Pc + 0.90 Pop + 1.5Y and assume that the price of cornbread increases 40% inducing the demand for livermush to shift 30% to the left. The new demand equation will be Q = .70(225  P + 20Ps  30Pc + 0.90 Pop + 1.5Y) = 157.5 = .7P + 14Ps  21Pc + 0.63 Pop + 1.05Y. Contrast this situation with a change in the goods own price. If the price of livermush increased by 0.25 per kg. quantity demanded would decrease by 0.25 units. The change in price of the good would not affect demand.^{[12]}
The market demand curve is the horizontal summation of individual consumer demand curves.^{[13]} Aggregation introduces three additional non price determinants of demand  (1) the number of consumers (2) "the distribution of tastes among the consumers" and (3) "the distribution of incomes among consumers of different taste."^{[14]} Thus if the population of consumers increases ceteris paribus the demand curve will shift out.^{[15]} If the proportion of consumers with a strong preference for a good increases certeris paribus the demand for the good will change.^{[16]}Finally if the distribution of income changes is favor of those consumer with a strong preference for the good in question the demand will shift out. ^{[17]}factors that affect individual demand can also affect aggregate demand. However, net effects must be considered. For example, a good that is a complement for one person is not necessarily a complement for another.^{[18]} Further the strength of the relationship would vary among persons.
PED is a measure of the sensitivity of the quantity variable, Q, to changes in the price variable, P.^{[19]} Elasticity answers the question of how much the quantity will change in percentage terms for a 1% change in the price. The formula for calculating PED is :(∂Q/∂P) (P/Q).
The overriding factor in determining PED is the willingness and ability of consumers after a price changes to postpone immediate consumption decisions concerning the good and to search for substitutes (wait and look). The greater the incentive the consumer has to delay consumption and search for substitutes and the more readily available substitutes are the more elastic the demand will be. Specific factors are:
The slope of a linear demand curve is constant. The elasticity of demand changes continuously as one moves down the demand curve. At the point the demand curve intersects the y axis PED is infinitely elastic.^{[21]} At the point the demand curve intersects the x axis PED is zero. ^{[22]}At one point on the demand curve PED is unitary elastic  PED equals one. Above the point of unitary elasticity is the elastic range of the demand curve. Below, is the inelastic range. The decline in elasticity as one moves down the curve is due to the falling P/Q ratio.
In perfectly competitive markets demand, average revenue, marginal revenue and price are equal. (D = AR = MR = P). The demand curve is perfectly elastic and coincides with the average and marginal revenue curves.^{[23]} Economic actors are price takers. Perfectly competitive firms have zero market power; that is, they have no ability to affect the terms and conditions of exchange. A PC firm's decisions are limited to whether to produce and if so, how much. In noncompetitive markets the demand curve is negatively sloped and there is a separate marginal revenue curve. A firm in a noncompetitive market is a price maker. The firm can decide how much to produce or what price to charge. ^{[24]}
In it standard form the demand equation is q = f(p). That is, quantity demanded is a function of price. The inverse demand equation, or price equation, treats price as a function of quantity demanded  p = f(q). To compute the inverse demand function, simply solve for P in the demand function. For example, if the demand function is Q = 240  2P then the inverse demand function would be P = 120  .5Q.^{[25]}
The inverse demand function is useful in deriving the total and marginal revenue functions. Total revenue equals price, P, times quantity, Q, or TR = P×Q. Multiply the inverse demand function by Q to derive the total revenue function: TR = (120  .5Q) × Q = 120Q  0.5Q². The marginal revenue function is the first derivative of the total revenue function or MR = 120  Q. Note that the MR function has the same yintercept as the inverse demand function, the xintercept of the MR function is onehalf the value of the demand function and the slope of the MR function is twice that of the inverse demand function. This relationship holds true for all linear demand equations. The importance of being able to quickly calculate MR is that the profitmaximizing conditions for firms regardless of market structure is to produce where marginal revenue equals marginal cost. To derive MC the first derivative of the total cost function is taken. For example assume cost, C, equals 420 + 60Q + Q2. then MC = 60 + 2Q[3] Equating MR to MC and solving for Q gives Q = 20. So 20 is the profit maximizing quantity  to find the profitmaximizing price simply plug the value of Q into the inverse demand equation and solve for P.
