Demand Is Not Desire

There's a general misconception that wanting something is the same thing as there being an economic demand for it, but that's not the case. It's not unusual for a word to have two meanings that are, on the surface, very similar, but actually, depending on context, quite different. That's the case with the word "demand."

Human desires are unlimited, but the resources available to meet them are not. Until resources are used to create or offer a good or serviceĀ and it is actually made available there is no economic demand for it. Demand can't be separated from either price or availability in economics. I might desire a general type of item. I might desire it enough to be willing to pay up to $100 for that type of item if I could get it. But if that general sort of item does get produced by someone who brings it on the market with a price tag of $500 then, for me at least, it may as well not exist.

The demand curve for an item is a theoretical construct that is an estimation for how many people are willing to buy something at a given price. The supply curve is a theoretical construct that is an estimation for how many units of an item might be made available by producers at a given price. The only place on either of those curves that corresponds to actual reality is where they cross at any specific given point in time in any specific general market.

That point is no guarantee of anything in the future, except in the most general and, often, very short term use. Costs change. Tastes change. Circumstances change. Other items become available, even if they have nothing to do directly with the item being analyzed. Most new businesses and most new products never find a price point in the market where they are worth continuing to operate or supply.

Desire does not create economic demand, nor does it create supply. Knowing that some people desire a certain kind of thing only lets a producer know that there may be a demand for it if, and only if, he thinks he can produce enough of it at a cost that is enough lower than they are willing to pay for it for long enough for it to be worth committing the resources he has available to produce it.

Report This Post