Living in a fully developed nation has many benefits. One of the biggest is the capacity to satisfy economic needs, and even many wants, without too much difficulty.
While shortages are not unheard of, they are most often corrected in due course. Even moderately free markets are sensitive to growth in what is available and what is lacking. An imbalance between the two is reflected in prices.
The law of supply and demand defines the price of a good or service according to the public appetite. Yet demand is not so simple, and comes in different forms. In fact, two of its manifestations are dependent demand and independent demand.
Read More: Supply vs. Demand Curves
What Affects Demand?
Factors that influence consumer purchasing can be trendy or existential. Demand can be motivated by personal attitudes like tastes and preferences. Other prime movers include affordability, which relates to income. When household and personal incomes fall, people will, by necessity, do without even if a product or service appeals to them.
Related to income are prices. Demand is tested when prices rise, particularly when there is a similar good/service available that sells more cheaply. Furthermore, exposure can ramp up demand, a strong reason for robust advertising and marketing. The overall pool of consumers, as well as their future expectations, also steer demand.
What Is Independent Demand?
As the words imply, independent demand for an item does not relate to that of any other item. Computers, motorcycles and Chinese food are examples. So are professional massages, manicures and golf lessons. These are ends, not means, economically speaking that is.
In short, independent demand tends to focus on finished products and refined services. Of course, some things can serve as a dependent and independent demand example. As a rule of thumb, though, end products and services are subject to independent demand.
What Is Dependent Demand?
Those computers need microchips, while the motorcycles need spark plugs. At the same time, masseuses need tables and other wares for their clients. These are components that are necessary for the finished product or the completed service. Without them, those things sought by independent demand can not be delivered.
Independent vs. dependent demand inventory is really no contest. The former inventories will shrink if the latter inventories run low. Without an adequate supply of rubber, motorcycle tires become scarce so, accordingly, fewer motorcycles can be sold. In general, then, dependent demand relates to parts and components.
Can Anything Be Subject to Both?
Certain parts can also be desired by the purchasing public. Many handy people repair their own vehicles, computers and other gadgets so demand changes from dependent to independent at the option of these consumers. In a larger sense, an independent demand product like a towel or blanket can also be at the mercy of dependent demand by hospitals or hotels as they serve the public. Thus, the definitions can be fluid but are still very practical.
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.