In economics, demand is the quantity of goods or services that consumers are able and willing to buy at a given price at a particular time. The law of demand provides that, if all other market factors remain constant, the demand for goods and services increases as their price decreases.
There are three types of demand: effective demand, latent demand and derived demand. Effective demand is when the consumers' desire to purchase a particular good or service is backed up by their ability to pay for it. Latent demand exists when consumers are willing to buy a particular product, but they lack the purchasing power to afford the product. Derived demand exists when the demand for a specific product is connected to the demand for a related product. For instance, the demand for steel is strongly related to the demand for new vehicles. If the demand for new vehicles declines, the demand for steel is also likely to decline.
A demand curve is used to show the relationship between the quantity of goods or services demanded and the price of those goods over a specific period. The two main reasons as to why demand increases when price falls are the substitution effect and the income effect. The substitution effect occurs when the price of a particular good falls, making the product relatively cheaper than an alternative product. This encourages consumers to shift their spending from the alternative service or good. The income effect manifests itself when the price of a specific good falls mainly because the buyer can maintain the same consumption with less expenditure.