Demand is the customer request for a product, reflecting a willingness to pay for that product at various price levels. In economic terms, demand represents the quantity of a product that consumers are prepared to purchase at different prices during a specific time period, forming a fundamental driver of production and market behaviour.
The relationship between demand and supply establishes market equilibrium through price mechanisms. The price of a market commodity is determined by the volume that can be produced at a marginal cost that equals the marginal demand. This equilibrium point represents where the cost of producing one additional unit (marginal cost) matches the value that consumers place on that additional unit (marginal demand). At this point, the market clears efficiently, with production volumes aligned to consumer preferences as expressed through their willingness to pay.
In Life Cycle Assessment, understanding demand is essential for several methodological considerations. Firstly, the concept of demand underpins consequential LCA modelling approaches, where the environmental consequences of changes in product demand drive the selection of activities included in the product system. When demand for a product increases, this triggers production responses that may involve different technologies and supply chains than those operating at current demand levels.
Secondly, demand influences market activity modelling and the identification of marginal suppliers. In consequential LCA, the marginal supplier responding to a change in demand is typically the supplier whose production is most likely to increase or decrease in response to that change, rather than the average supplier represented in attributional approaches.
Thirdly, demand considerations connect directly to the functional unit definition in ISO 14040, which specifies "quantified performance of a product system for use as a reference unit". The functional unit represents the demand-side perspective, defining what function or service is being demanded, whilst the reference flow represents the supply-side response to meet that demand.
Understanding demand patterns, elasticity, and market dynamics enables more robust modelling of environmental consequences and supports decision-making that accounts for how changes in consumption patterns propagate through economic systems and their associated environmental impacts.
