Economics
Demand Curve
The demand curve illustrates the relationship between the price of a good or service and the quantity demanded by consumers. It slopes downward from left to right, indicating that as the price decreases, the quantity demanded increases. This graphical representation is a fundamental concept in economics, demonstrating the inverse relationship between price and quantity demanded.
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11 Key excerpts on "Demand Curve"
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
The assumption that all other factors remain constant is an important one to keep in mind when examining many relationships in economics. Figure 2.1 shows a hypothetical market Demand Curve for 55-inch flat-screen televisions (TVs). At each possible price, the curve identifies the total quantity desired by consumers. So, at a per-unit price of $400, the quantity demanded will be 400,000, while at a per-unit price of $300, the quantity demanded will be 550,000. Note that we do not say that demand is higher at the lower price, only that the quantity demanded is. When economists use the term demand by itself (as in demand and supply), we are referring to the entire relation- ship, the Demand Curve. Quantity demanded, however, refers to one particular quantity on the Demand Curve. The negative slope of the Demand Curve—higher prices associated with lower quantities—is the graphical representation of the law of demand. Economists believe that the Demand Curves for all, or virtually all, goods and inputs slope downward. As a consequence, the proposition that Demand Curves have negative slopes has been elevated in economic jargon to the position of a “law.” It is probably the most universally valid propo- sition in economics. 2.1 law of demand the economic principle that says the lower the price of a good, the larger the quantity consumers wish to purchase $400 $300 400,000 550,000 Quantity of flat-screen TVs (per month) 0 D Price per flat-screen TV A Demand Curve The Demand Curve D shows the quantity of flat-screen TVs that consumers will purchase at alternative prices. Its negative slope reflects the law of demand: more flat-screen TVs are purchased at a lower price. Figure 2.1 • Demand and Supply Curves 15 A Demand Curve for a product pertains to a particular time period. For example, the Demand Curve in Figure 2.1 may refer to consumer buying behavior for July of this year. Another Demand Curve may be relevant for a different time period.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
Economics is not math.) The demand schedule shown by Table 3.1 and the Demand Curve shown by the graph in Figure 3.2 are two ways of describing the same relationship between price and quantity demanded. Figure 3.2 A Demand Curve for Gasoline The demand schedule shows that as price rises, quantity demanded decreases, and vice versa. These points are then graphed, and the line connecting them is the Demand Curve (D). The downward slope of the Demand Curve again illustrates the law of demand—the inverse relationship between prices and quantity demanded. Price (per gallon) Quantity Demanded (millions of gallons) $1.00 800 $1.20 700 $1.40 600 Table 3.1 Price and Quantity Demanded of Gasoline Chapter 3 | Demand and Supply 45 Price (per gallon) Quantity Demanded (millions of gallons) $1.60 550 $1.80 500 $2.00 460 $2.20 420 Table 3.1 Price and Quantity Demanded of Gasoline Demand Curves will appear somewhat different for each product. They may appear relatively steep or flat, or they may be straight or curved. Nearly all Demand Curves share the fundamental similarity that they slope down from left to right. So Demand Curves embody the law of demand: As the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases. Confused about these different types of demand? Read the next Clear It Up feature. Is demand the same as quantity demanded? In economic terminology, demand is not the same as quantity demanded. When economists talk about demand, they mean the relationship between a range of prices and the quantities demanded at those prices, as illustrated by a Demand Curve or a demand schedule. When economists talk about quantity demanded, they mean only a certain point on the Demand Curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve.
eBook - PDF- Tucker, Irvin Tucker(Authors)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
............................................................................................................................................................................................. ............................................................................................................................................................................................. 3-1 THE LAW OF DEMAND Economics might be referred to as “ graphs and laughs ” because economists are so fond of using graphs to illustrate demand, supply, and many other economic concepts. Unfor-tunately, some students taking economics courses say they miss the laughs. Exhibit 1 reveals an important “ law ” in economics called the law of demand . The law of demand states there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus. The law of demand makes good sense. At a “ sale, ” consumers buy more when the price of merchandise is cut. EXHIBIT 1 An Individual Buyer ’ s Demand Curve for Blu-rays Bob ’ s Demand Curve shows how many Blu-rays he is willing to purchase at different possible prices. As the price of Blu-rays declines, the quantity demanded increases, and Bob purchases more Blu-rays. The inverse relationship between price and quantity demanded conforms to the law of demand. 20 5 Price per Blu-ray (dollars) 16 12 8 4 0 10 15 20 Quantity of Blu-rays (per year) A C D B Demand Curve An Individual Buyer ’ s Demand Schedule for Blu-rays Point Price per Blu-ray Quantity demanded (per year) A $20 4 B 15 6 C 10 10 D 5 16 Law of demand The principle that there is an inverse relationship between the price of a good and the quantity buyers are willing to pur-chase in a defined time period, ceteris paribus. CHAPTER 3 | Market Demand and Supply 59 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
eBook - PDF- Rhona C. Free(Author)
- 2010(Publication Date)
- SAGE Publications, Inc(Publisher)
Likewise, a consumer who is able but unwilling to buy a product is also not considered to be part of market demand. Quantity demanded is defined to be the amount of a product that buyers are willing and able to purchase at a specific price. To summarize, the difference between demand and quantity demanded for a product is that demand refers to the amount potential buyers are both willing and able to purchase at all prices, and quantity demanded refers to the amount potential buyers are willing and able to purchase at a specific price. Once these two terms are understood, it becomes possible to introduce the law of demand. One of the most basic concepts in economics is the law of demand. The law of demand is simply an observation of a consumer's general response to changes in a product's price. As price decreases, consumers tend to be willing and able to purchase more of a product, and as price increases, consumers tend to be willing and able to purchase less of a product. To help visualize economic concepts, econo-mists often try to illustrate the concepts using graphs. The law of demand is illustrated in Figure 7.1. The lines labeled D, and D 2 are referred to as Demand Curves. The lines are drawn here as linear functions to enhance the simplicity of the graph, but these lines could also be drawn as curved lines that are convex to the origin. A change in demand is illustrated by a shift in the loca-tion of the entire curve. In Figure 7.1, demand is said to increase if demand changes from D, to D 2 . An increase in demand means that consumers are willing and able to pur-chase more at every price. For example, the movement from point A to C represents an increase in demand because at point A, consumers are willing to buy Q x , but Q 2 at point C.
eBook - PDF- W. Keith Bryant, Cathleen D. Zick(Authors)
- 2005(Publication Date)
- Cambridge University Press(Publisher)
This relationship between the quantity of X demanded and the price of X is called the Demand Curve for X . It is derived from the household indifference diagram in Figure 3.6 . In the top panel of Figure 3.6 , three equilibrium purchase patterns are depicted at three different prices for X , with income, other prices, and preferences held constant. In the bottom panel is a diagram with the price of X plotted on the vertical axis and the quantity of X demanded plotted along the horizontal axis such that quantities of X in the equilibrium purchase patterns in the top panel can be dropped vertically down the horizontal axis on the bottom panel. As the price of X falls from p o x to p 1 x to p 2 x , the demand for X increases from q o x to q 1 x to q 2 x . The curve so mapped out is the Demand Curve for X . Definition : The Demand Curve for a good is the schedule of quantities the consumer is willing and able to consume at different prices, holding income, other prices, and consumer preferences constant. Note that the slope at any point on the Demand Curve in the bottom panel of Figure 3.6 is ( p x / q x ); that is, the rise over the run. Note also that if one were to draw a line from the point on the Demand Curve to the origin, the slope of that line would be ( p x / q x ). Because the own-price elasticity of demand has been defined as E x = | ( q x / p x )( p x / q x ) | (equation [ 3.10 ]), it is clear that the own-price elasticity of demand can be estimated from the Demand Curve as E x = | ( p x / q x ) / ( p x / q x ) | = | ( q x / p x )( p x / q x ) | ; that is, E x = slope of the line from the origin to the point on the Demand Curve slope of the Demand Curve at the point . 52 The Economic Organization of the Household Figure 3.6.
eBook - PDF- Colin Harbury(Author)
- 2014(Publication Date)
- Pergamon(Publisher)
The forces of supply and demand working through the price mechanism can be thought of as helping to solve the central economic problems of any society. Prices act, as it were, as signals which perform two functions. (i) Prices signal to suppliers the demand for different goods and services. Comparing prices with costs, producers can decide how to allocate resources in order to maximise profits. (ii) Prices signal to buyers the costs of acquiring different goods and services. Comparing prices with the satisfaction that goods bring, buyers can decide how to allocate their expenditure in order to maximize their satisfaction. In changing circumstances, prices act as signals to producers to adjust the allocation of resources. Prices also function to ration a limited supply among those who are prepared to pay most for it. The DEMAND for a commodity is generally thought of as being by 'consumers' (or 'households'). It is rarely for a fixed amount, but is considered as a SCHEDULE of quantities which would be bought in the course of a given period of time at various prices. It is sometimes referred to specifically as the schedule of EFFECTIVE DEMAND to emphasize that it is not mere desires which are relevant but wants backed by preparedness to buy. The relationship between demand and price may be portrayed graphically as a Demand Curve, with price plotted on the vertical axis and the quantity demanded on the horizontal axis. Market demand is made up of the demands of all individual consumers, and there is an observed tendency for Demand Curves to slope downwards to the right. This may be explained in two ways. First, as price falls, the number of persons entering the market as purchasers tends to increase. Second, as price falls, there is a tendency for each individual consumer to demand more. The second reason is related to the principle of DIMINISHING MARGINAL UTILITY.
- Berkeley Hill(Author)
- 2013(Publication Date)
- Pergamon(Publisher)
For example, if income tax is increased on unmarried men and decreased on married men, leaving in taste towards good Swing in taste away from the good 62 An Introduction to Economics for Students of Agriculture average spendable income unchanged, it could be expected that the demand for sports cars in the country as a whole would decline but the demand for family saloons would increase. SHIFTS ALONG THE Demand Curve AND SHIFTS OF THE WHOLE Demand Curve FOR A COMMODITY To conclude this section on demand, it is worth recapitulating on the ways the factors described above affect the Demand Curve. A Demand Curve shows the quantities of a commodity which consumers are willing and able to take from the market at a range of given prices of the com-modity. If the price of the commodity is altered, because a shift in the supply curve causes the Demand Curve and the supply curve to intersect at a different level, more (or less) will be bought; this involves a move-ment along the Demand Curve. However, the whole curve will be shifted to the left or right by a change in consumer income, a change in the prices of competitive or complementary goods, changes in taste, popula-tion changes or a change in the distribution of incomes between house-holds. Having considered the demand for commodities in detail, the same approach will now be adopted to the supply of goods and services. B. The Theory of Supply THE MEANING OF SUPPLY AND FACTORS WHICH DETERMINE IT The supply of a commodity can be defined as the quantity that pro-ducers are willing and able to offer for sale in a given time period. Like demand, supply is a flow of goods and services. The supply of any good depends on five factors: (a) the price of the good (PA) (b) the prices of other goods which firms could produce or do produce (PB, .... ΛΟ (c) the prices of factors of production i.e.
- Walter Nicholson, Christopher Snyder(Authors)
- 2021(Publication Date)
- Cengage Learning EMEA(Publisher)
That is, demand is homoge-neous of degree zero for changes in all prices and income. ● A change in a good’s price will create substitution and in-come effects. For normal goods, these work in the same direction—a fall in price will cause more to be demanded, and a rise in price will cause less to be demanded. ● A change in the price of one good will usually affect the demand for other goods as well. That is, it will shift the other goods’ Demand Curves. If the two goods are com-plements, a rise in the price of one will shift the other’s Demand Curve inward. If the goods are substitutes, a rise in the price of one will shift the other’s Demand Curve outward. ● Consumer surplus measures the area below a Demand Curve and above market price. This area shows what peo-ple would be willing to pay for the right to consume a good at its current market price. ● Market Demand Curves are the horizontal sum of all in-dividuals’ Demand Curves. This curve slopes downward Copyright 2022 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 122 PART 2 ● Demand because individual Demand Curves slope downward. Fac-tors that shift individual Demand Curves (such as changes in income or in the price of another good) will also shift market Demand Curves. ● The price elasticity of demand provides a convenient way of measuring the extent to which market demand responds to price changes—it measures the percentage change in quantity demanded (along a given Demand Curve) in response to a 1 percent change in price.
eBook - PDFEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
curve. Alternatively, we could say that the highest price that consumers are willing to pay for an additional unit declines as they consume more and more of it. In this way, we can interpret their willingness to pay as a measure of how much they value each additional unit of the good. This point is very important: To purchase a unit of some good, consumers must give up something else they value. So the price they are willing to pay for an additional unit of a good is a measure of how much they value that unit, in terms of the other goods they must sacrifice to consume it. If Demand Curves are negatively sloped, it must be because the value of each additional unit of the good falls the more of it they consume. We will explore this concept further later, but for now it is enough to recognize that the Demand Curve can thus be considered a marginal value curve because it shows the highest price consumers are willing to pay for each additional unit. In effect, the Demand Curve is the willingness of consumers to pay for each additional unit. This interpretation of the Demand Curve allows us to measure the total value of con- suming any given quantity of a good: It is the sum of all the marginal values of each unit consumed, up to and including the last unit. Graphically, this measure translates into the area under the consumer’s Demand Curve, up to and including the last unit consumed, as shown in Exhibit 1-12, in which the consumer is choosing to buy Q 1 units of the good at a price of P 1 . The marginal value of the Q 1 th unit is clearly P 1 , because that is the highest price the consumer is willing to pay for that unit. Importantly, however, the marginal value of each unit up to the Q 1 th unit is greater than P 1 . 7 Because the consumer would have been willing to pay more for each of those units than she actually paid (P 1 ), then we can say she received more value than the cost to her of buying them.
No longer available |Learn more- William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
(Question: What would happen to the market Demand Curve if, say, another con-sumer entered the market?) 5-5b The “Law” of Demand Just as in the case of an individual’s Demand Curve, we expect the total quantity demanded by the market to move in the opposite direction from price, so the slope of the market Demand Curve will also be negative. Economists call this relationship the “law” of demand . Alex’s demand D A A D 0 9 $10 Price Quantity Demanded (a) Naomi’s demand Z N N Z 0 6 Quantity Demanded (b) Market demand M C C M 0 15 Quantity Demanded (c) K 6 9 Price Price Figure 4 The Relationship between Total Market Demand and the Demand of Individual Consumers within That Market The “law” of demand states that a lower price generally increases the amount of a commodity that people in a market are willing to buy and also tends to increase the number of buyers. Therefore, for most goods, market Demand Curves have negative slopes. Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 98 Part 2 The Building Blocks of Demand and Supply Notice that we have put the word law in quotation marks. By now you will have observed that economic laws are not always obeyed, and we shall see in a moment that the “law” of demand is not without exceptions. But first, let us see why the “law” usually holds. Earlier in this chapter, we explained that individuals’ Demand Curves usually slope down-ward because of the “law” of diminishing marginal utility.
eBook - PDFEconomics For Dummies
Book + Chapter Quizzes Online
- Sean Masaki Flynn(Author)
- 2023(Publication Date)
- For Dummies(Publisher)
But this price can’t last because, with the new Demand Curve, there’s now an excess demand. That is, at price P * 0 , the quantity demanded, Q D 1 , exceeds the quantity supplied, Q * 0 . FIGURE 4-11: A rightward shift of the Demand Curve. © John Wiley & Sons, Inc. 80 PART 2 Microeconomics: The Science of Consumer and Firm Behavior Any such shortage causes buyers to bid up the price. (See the earlier section “Excess demand: Raising prices until they reach equilibrium.”) The result is that the price rises and continues to rise until it reaches P * 1 , the price where Demand Curve D 1 crosses supply curve S. Note that when moving from the first equilibrium to the second, the equilibrium quantity increases from Q * 0 to Q * 1 . This result makes good sense because if demand increases and buyers are willing to pay more for something, you would expect more of it to be supplied. Also, the price goes up from one equilibrium to the other because to get suppliers to supply more in a world of rising costs, you have to pay them more. However, a much more subtle thing to realize is that the slope of the supply curve interacts with the Demand Curve to determine how big the changes in price and quantity will be. Think of a vertical (perfectly inelastic) supply curve, such as the one in the left-hand graph of Figure 4-7. For such a supply curve, any increase in demand increases only the price because the quantity can’t increase. On the other hand, if you’re dealing with a horizontal (perfectly elastic) supply curve, as in the right-hand graph of Figure 4-7, a rightward shift in demand increases only the quantity because the price is fixed at P’. Neither demand nor supply is in complete control in a situation like Figure 4-11. Their interaction jointly determines equilibrium prices and quantities and how they change if the Demand Curve or the supply curve shifts.
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