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What is demand in economic theory?

The absolute short and sweet answer to this question is: Demand is an financial idea that pertains to a consumer’s preference to buy items and offerings and willingness to pay a particular price for them.

In other words if you sell an apple for $y you will have x amount of customers, if you then double the price, you wouldn’t double the amount of customers, but rather half them. Where the price is high, the demand is typically lower, and the other way around.

demand and supply curve
Supply and demand curves diagram showing equilibrium point on white background

Does this hold true in the real world?

Both yes and no, often economic theories is a way to simplify the real world. It doesn’t always take into account human behaviour. Unless you are looking into behaviour economics specifically but then you won’t get nice graphs. Human are more irrational than what economists often view us as, but the again economists does get a large portion of it right.

What should I think about when I try and understand the demand for my product ir service?

Now this is the million dollar question. How do I set the correct price on my product or service? There is several things you need to take into account. Obvious things such as your own incurred costs and your margin, the branding of your product, but also the competitions. A lot of times companies themselves ask customers ‘what would you pay for our product/service?’. The problem is that this is often asked to already existing customers, which often misses the mark on what the whole industry wants and particularly new potential customers.

The only trustworthy solution is actually to do proper, unbiased research. You do that by hiring a pricing consultant, such as us here at Atenga. Now, this might sound biased, and it is to some extent. But it is also a way to get research done about your industry.

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Atenga Insights is a fast-growing, global company that is challenging the pricing consulting industry. Using our unique proprietary PDA™ technology, we identify the price and positioning that will generate higher sales and profits for our clients.