Demand-determined

Demand-determined describes economic systems or specific market situations where the quantity of goods or services produced, and consequently their prices, are primarily established by the level of consumer demand. This means the forces of supply react to shifts in consumer desires. Higher demand tends to push prices and production upwards; conversely, lower demand leads to decreased prices and output. The consumer's preferences, income, and willingness to pay are the main drivers, with producers adjusting their strategies to meet market signals. It contrasts with systems where supply or external factors, like government control, heavily influence output and price.

Demand-determined meaning with examples

• In a demand-determined market for organic produce, farmers increase their yields and set higher prices when health-conscious consumers actively seek out these products. The rising interest in sustainable food directly influences the supply chain and production levels, driven by what the consumers want to buy and are willing to pay for these products.
• The success of the latest fashion trend illustrates a demand-determined market. If a certain style quickly becomes popular among consumers, retailers will order increased quantities, and manufacturers ramp up production. The consumer dictates what is in style. They determine the quantity produced, and the prices in the market.
• Unlike areas with regulated oil prices, the sale of video games is typically demand-determined. A popular game sees substantial sales, influencing publishers to increase production and drive prices in certain markets. The success is based on what the market and customer want. The publisher relies on consumer popularity to influence the cost and availability.
• The vacation industry demonstrates demand-determined dynamics. Increased interest in a particular destination or type of vacation during a peak season causes higher costs for hotels, flights and related services. Conversely, during off-season periods, prices drop to attract a smaller number of potential customers and increase sales.