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.
8 Key excerpts on "Demand Curve"
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
...Graphing a supply curve or a Demand Curve demonstrates the relationship between price and quantity. As has been noted, these graphs are conventionally drawn with price (the independent variable) on the vertical axis, and quantity demanded (the dependent variable) on the horizontal axis. Price causes quantity demanded. Figure 9.4 The demand for steak dinners in Philadelphia Plate 9.3 Steak dinner Quick Quiz 9.2 Why do economists draw supply and Demand Curves “backward”? (9.5.a) P → Q d P = independent variable (9.5.b) Q d = f(P) Q d = dependent variable. Consumers of commonly purchased goods take prices as given and decide how much to buy. Assuming a competitive economy, each individual consumer is so small relative to the market that he or she cannot affect the price of a good. Therefore, price causes quantity demanded. Quick Quiz 9.3 Why does the assumption of competition result in constant prices faced by an individual buyer? To summarize, the Demand Curve captures the relationship between the price of a good (P), and the quantity demanded (Q d), ceteris paribus. The law of demand states that if the price of a good increases, then the quantity demanded will decrease, ceteris paribus. The next section deals with elasticity of demand, a concept used to indicate how responsive consumers are to changes in prices and other economic variables. 9.2 The elasticity of demand “Elasticity,” introduced in Chapter 8, measures the changes in one variable that come in response to changes in another variable. The price elasticity of demand tells us how responsive the quantity demanded is to a change in price. The price elasticity of demand answers the question, “How much does quantity demanded change when price changes?” Figure 9.5 makes this clear. When the price of steak dinners falls from P 0 to P 1, the law of demand states that consumers in Philadelphia (and all other places!) will purchase more steak dinners...
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...In most markets, there are many buyers, sometimes thousands or millions. Unless otherwise noted, when we talk about demand, we are referring to market demand. The Demand Curve and the Law of Demand Figure 2.1 (a) shows the market demand schedule for compact discs (CDs). The first column of the figure shows possible prices for CDs. The second column shows the quantities of CDs demanded per week at different prices, assuming that all other determinants affecting buyer behavior remain constant. The data in the demand schedule show that when the price of CDs is $25, consumers demand 1,000 CDs per week. At a price of $20, consumers demand 2,000 CDs per week, and so forth. Figure 2.1 The Demand Schedule and Demand Curve for CDs The market demand schedule shows the quantity of CDs demanded at various prices by all consumers. The market Demand Curve is a graphical portrayal of the data comprised by the market demand schedule. The market Demand Curve slopes downward, indicating that as price decreases, the quantity demanded increases. This inverse relationship between the change in the price of a good and the change in quantity demanded is known as the law of demand. A market Demand Curve is a graphical representation of a market demand schedule. Figure 2.1 (b) illustrates the weekly Demand Curve for CDs by plotting the data from the table. Points on the vertical axis represent price, and points on the horizontal axis represent the quantity demanded. Notice that the market Demand Curve slopes downward, reflecting the law of demand : Price and quantity demanded are inversely or negatively related, assuming that all other factors affecting the quantity demanded remain the same. When the price is higher, the quantity demanded decreases; likewise, when the price is lower, the quantity demanded increases. We call the law of demand a “law” because it can be widely applied to buyer behavior...
eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
...The demand function represents buyers’ behavior and can be depicted (in its inverse demand form) as a negatively sloped Demand Curve. The supply function represents sellers’ behavior and can be depicted (in its inverse supply form) as a positively sloped supply curve. The interaction of buyers and sellers in a market results in equilibrium. Equilibrium exists when the highest price willingly paid by buyers is just equal to the lowest price willingly accepted by sellers. Goods markets are the interactions of consumers as buyers and firms as sellers of goods and services produced by firms and bought by households. Factor markets are the interactions of firms as buyers and households as sellers of land, labor, capital, and entrepreneurial risk-taking ability. Capital markets are used by firms to sell debt or equity to raise long-term capital to finance the production of goods and services. Demand and supply curves are drawn on the assumption that everything except the price of the good itself is held constant (an assumption known as ceteris paribus or “holding all other things constant”). When something other than price changes, the Demand Curve or the supply curve will shift relative to the other curve. This shift is referred to as a change in demand or supply, as opposed to quantity demanded or quantity supplied. A new equilibrium generally will be obtained at a different price and a different quantity than before. The market mechanism is the ability of prices to adjust to eliminate any excess demand or supply resulting from a shift in one or the other curve. If, at a given price, the quantity demanded exceeds the quantity supplied, there is excess demand and the price will rise. If, at a given price, the quantity supplied exceeds the quantity demanded, there is excess supply and the price will fall. Sometimes auctions are used to seek equilibrium prices...
eBook - ePub- Enrico Colombatto(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...In particular, the negative slope of the curve is due to the crucial – but plausible – assumption according to which the lower the sacrifice required to obtain X, the greater one's willingness to have more of it. 2.3 Demand Curves are imaginary and partial Simple as the above might sound, some caution is, however, necessary. To begin with, the reader will surely recall that all the price–quantity intersections described by the demand schedule depicted in Figure 2.1 refer to the combinations that match Alicia's ideal, from which Alicia has no incentive to deviate. To repeat, the demand schedule is developed by imagining that an individual goes to a hypothetical market place as a price taker and faces a seller asking him: ‘how much X would you buy if the price was P 0 ? And how much would you buy at P 1 ? And at P 2 ?’ Each of the answers given by Alicia identifies one point in a space defined by quantity and prices. Finally, by connecting all the points, one obtains the Demand Curve for good X. Crucial to understanding the demand schedule/curve, however, is the fact that those points relate to contexts in which Alicia ends up being content with her situation and indifferent between buying more and buying less of X. Economists typically characterise this situation as ‘equilibrium’, and claim it explains why the demand schedule can definitely be portrayed as a locus of ideal/optimal choices (or of equilibrium). If this condition of indifference did not apply, Alicia would ask for a greater or smaller quantity of X at each price quoted by the prospective seller. Yet, this is an imperfect world and human beings are imperfect creatures. In other words, individuals rarely consume the set of goods and services that maximises their satisfaction...
eBook - ePub- Milton Friedman(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...It represents an attempt to relate a rate of flow to a price at an instant of time. For many problems, it is useful to conceive of a Demand Curve as a boundary line separating two spaces, the space to the left of the Demand Curve representing points that are attainable under the given conditions of demand, in the sense that demanders would be willing to buy the indicated quantity at the indicated price; and the space to the right of the Demand Curve representing points that are unattainable in the sense that demanders would not be willing to buy the indicated quantity at the indicated price (see Figure 2.1). F IGURE 2.1 The demand for any commodity or service may be a composite demand, compounded out of the demand for a number of different uses: e.g., the demand for leather is a composite of the demand for leather for shoes, for pocket books, etc. A product may be jointly demanded with some other products: e.g., there is a joint demand for tennis rackets and tennis balls, automobiles and automobile tires. More generally, the demand for any product is always a joint demand for the resources used to produce it. The demand for a commodity or service may be derived from the demand for some final good: e.g., the demand for carpenters’ labor is derived from the demand for houses. Consumer demand for final products is the ultimate source of the derived demand for resources. For short periods, however, the demand of dealers can vary independently of the demand of final consumers. The demand of dealers, in turn, may be strongly influenced and affected by expectations concerning future prices, a factor that generally plays a much smaller role in determining consumer demand. For this reason, the usual tools of demand and supply may not be very useful in a study of day-today fluctuations in this type of market. Of course, formally they could still be used for this purpose, but major attention would then have to be placed on changes in them rather than movements along them...
eBook - ePub- Tom Craig, David Campbell(Authors)
- 2012(Publication Date)
- Routledge(Publisher)
...We do this by means of a simple table called the demand schedule. The general rule of demand is that there will usually be an inverse relationship between the price and the quantity demanded. In other words: the higher the price, the lower the quantity demanded; the lower the price, the higher the quantity demanded. We can illustrate this with a simple example. Product P has the following demand schedule shown in Table 17.1. The quantity refers to the number of units that would be bought by the market in a given time period if the price was set at the figure on the left. Hence, if the price per unit was £100, one unit would be demanded by the market. If, however, the price was set at £40, the market in total would buy five units. Table 17.1 Demand schedule Price (£) Quantity demanded 100 1 82 2 66 3 52 4 40 5 30 6 22 7 18 8 16 9 The Demand Curve We can now plot the demand schedule to see on a graph how the quantity demanded of a good or service relates to its price. Figure 17.4 shows the Demand Curve for the data in Table 17.1. The top left to bottom right slope is typical of the shape of a Demand Curve. At the top left, the price is high but the quantity demanded is low. At the bottom right, the opposite is the case – low price, high quantity. Figure 17.4 Demand Curve. Calculating Revenue From the Demand Curve Once we have drawn the Demand Curve, we can use it to calculate the business’s potential revenue at any given point along it. We learned in the last chapter that: total revenue (TR) = price (P) × quantity (Q). At any point on the Demand Curve, we can calculate the revenue generated at that point simply by multiplying the figure on the quantity axis by that on the price axis. Figure 17.5 uses the data in Table 17.1. Figure 17.5 Calculating revenue from the Demand Curve. At point P1, the revenue generated will be £40 × 5 £200...
eBook - ePub- Charles E. Phelps(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...Thus, for example, if C equals 0.2, then the slope would become five times as great. (Graphed the other way around, the slope dm/dp would become C times its original slope.) The insurance policy also makes the Demand Curve less elastic in general (when evaluated at the same price). The elasticity of a Demand Curve describes the percentage change in quantity arising from a 1 percent change in price. (See Box 4.1 for a summary discussion of the concept of demand elasticities.) When C = 0, the elasticity is zero, which is another way of saying that the consumer ignores price in making decisions about purchasing medical care. In the case of linear Demand Curves, there is no simple relationship between the uninsured and insured elasticities, except to say that, at the same market price, insured Demand Curve elasticities fall steadily toward zero as C falls toward zero. 10 Box 4.1 Flasticities of Demand Curves A Demand Curve shows the relationship between quantities demanded by consumers and the price, holding constant all other relevant economic variables. The slope of the Demand Curve tells the rate of change in quantity (q) as the price (p) changes. Suppose we have two observations on a Demand Curve, (q 1, p 1) and (q 2, p 2), where something has caused the price to change and we can observe the change in quantity demanded. Define the change in q as Δ q = q 2 – q 1 and the change in p as 'p = p 2 – p 1. The rate of change in q as p changes is then Δ q/ Δ p. (If we allow the change to become very small, using calculus techniques, we would define the rate of change at any point as dq/dp, the first derivative of the Demand Curve q = f (p).) The elasticity of a Demand Curve is another measure of the rate at which quantity changes as price changes. The advantage of elasticities is that they are scale-free, so you don’t need to know how quantity and price were measured to understand the information...
eBook - ePub- Léon Walras, William Jaffé(Authors)
- 2013(Publication Date)
- Routledge(Publisher)
...5. 55. Demand Curves are, therefore, enclosed by hyperbolas of total existing quantity. It may be added that, in general, Demand Curves meet the co-ordinate axes and are not asymptotic to them. Demand Curves generally intersect their demand axes, because the quantity of any good which an individual will take is ordinarily finite even when the price is zero. If oats were obtainable absolutely free of charge, some individuals might keep ten and others a hundred horses, but no one would keep an infinite number of horses and consequently no one would demand an infinite quantity of oats. Now the sum total of the separate quantities of oats demanded at the price zero, being the sum of finite quantities, would itself have to be a finite quantity. Demand Curves usually intersect their price axes, because the price of any commodity may conceivably be set so high, though short of infinity, that no one at all will demand even an infinitely small quantity of it. [ b ] We cannot, however, make any absolute assertions to that effect. It is perfectly possible for a case to arise where either all or a part of commodity (B) is offered unconditionally at whatever price it can fetch. [6] In that case the Demand Curve A d A p will coincide, in whole or in part, with the hyperbola passing through Q b or with some other hyperbola closer to the axes. Hence, in order to keep our minds open to all contingencies, we shall consider Demand Curves capable of taking all possible positions between the co-ordinate axes and the hyperbolas of total existing quantity. [ c ] 56...
