Effective and Absolute Demand

Effective Demand

Effective demand is the demand of the people who are willing to pay the rent, labour, and profits needed to make them and bring them to market.

This is the demand that truly shapes the market. If effective demand is high enough to cover production costs, suppliers will continue making the good; if it falls too low, production will slow or stop.

Absolute Demand

Absolute demand refers to the total desire or want for a good, regardless of a person’s ability to pay for it.

It represents how much of a product people wish to have, based on their needs, preferences, or basic necessities.

For example, everyone may want food, shelter, or luxury goods, but this desire alone does not influence production or market prices. Smith noted that absolute demand is unlimited in theory, but it has no real economic impact because it is not backed by purchasing power.

Demand represents economic desire which is the driving force in an Economic and a Supereconomic system.

• Economics does not have the concept of Absolute Demand.

We use Absolute Demand to keep the dynamism of a supereconomy and prevent stagnation.