Types of Market Economy Understanding Demand Macroeconomic Policy and Demand

Understanding Demand
Businesses can spend a considerable amount of money to determine the amount of demand the public has for their products and services. How many of their goods will they actually be able to sell at any given price?
Incorrect estimations can result in lost sales from willing buyers if demand is underestimated or losses from leftover inventory if demand is overestimated. Demand helps fuel profits and the economy. That's why it's an important concept.
Demand is closely related to the concept of supply. While consumers try to pay the lowest prices they can for goods and services, suppliers try to maximize profits.
If suppliers charge too much for a product, the quantity demanded drops and suppliers may not sell enough product to earn sufficient profits. If suppliers charge too little, the quantity demanded increases but lower prices may not cover suppliers’ costs or allow for profits.
Some factors affecting demand include the appeal of a good or service, the availability of competing goods, the availability of financing, and the perceived availability of a good or service.
Demand elasticity relates to how sensitive the demand for a product is as the price for it changes. For example, if there's a big change in demand due to a small change in price, demand elasticity is said to be high. Shoppers may choose attractive substitute products if the price for their usual product has increased somewhat. That could indicate high demand elasticity and is useful for businesses to know.
Determinants of Demand
There are five main factors that drive demand:

• 
  Product/service price
  
• 
  Buyer's income
  
• 
  Prices of substitute goods
  
• 
  Consumer preferences
  
• 
  Consumer expectations for a change in price
  

As these factors change, so can the demand for a product or service. In fact, they change all the time, so demand can be constantly in flux.