Effective Demand

Effective demand refers to the actual desire and ability of consumers to purchase goods and services in the economy at a given price level. It's not just wanting something; it's having the necessary income and willingness to spend that income. For instance, if many people want to buy a new smartphone but cannot afford it, that desire does not constitute effective demand. Conversely, if people are willing to buy the smartphone at its price, that represents effective demand, influencing production and economic activity. Essentially, effective demand reflects what people can and are willing to buy in the marketplace.