Answer to Question #237836 in Economics of Enterprise for Alina

Question

What is Effective demand. Explain with example.

Answer 1

Solution:

Effective demand refers to the demand for a product or service which occurs when purchasers are restrained in a different market. It refers to the willingness and ability of consumers to purchase goods at various prices. The quantity of goods that consumers are actually purchasing, supported by their ability to pay is displayed by effective demand.

 

An example, normally a consumer named John would purchase four loaves of bread per week. Should he have an unexpected drop in income, he may not be able to afford the four loaves and his demand becomes latent. But when his income returns back to normal, his latent demand will return to effective demand.