- Law of demand
- Law of demand
- Market demand as the sum of individual demand
- Substitution and income effects and the law of demand
- Price of related products and demand
- Change in expected future prices and demand
- Changes in income, population, or preferences
- Normal and inferior goods
- Inferior goods clarification
- What factors change demand?
- Lesson summary: Demand and the determinants of demand
- Demand and the law of demand
If the price of something goes up, people are going to buy less of it.
- The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded.
- Demand curves and demand schedules are tools used to summarize the relationship between quantity demanded and price.
Demand for goods and services
Economists use the term demand to refer to the amount of some good or service consumers are willing and able to purchase at each price. Demand is based on needs and wants—a consumer may be able to differentiate between a need and a want, but from an economist’s perspective they are the same thing. Demand is also based on ability to pay. If you cannot pay, you have no effective demand.
What a buyer pays for a unit of the specific good or service is called price. The total number of units purchased at that price is called the quantity demanded. An increase in the price of a good or service almost always decreases the quantity demanded of that good or service. Conversely, a decrease in price will increase the quantity demanded.
When the price of a gallon of gasoline goes up, for example, people look for ways to reduce their consumption by combining several errands, commuting by carpool or mass transit, or taking weekend or vacation trips closer to home. Economists call this inverse relationship between price and quantity demanded the law of demand. The law of demand assumes that all other variables that affect demand are held constant.
Demand schedule and demand curve
- A demand schedule is a table that shows the quantity demanded at each price.
- A demand curve is a graph that shows the quantity demanded at each price. Sometimes the demand curve is also called a demand schedule because it is a graphical representation of the demand scheduls.
Here's an example of a demand schedule from the market for gasoline.
|Price (per gallon)||Quantity demanded (millions of gallons)|
Price, in this case, is measured in dollars per gallon of gasoline. The quantity demanded is measured in millions of gallons over some time period—for example, per day or per year—and over some geographic area—like a state or a country.
Here's the same information shown as a demand curve with quantity on the horizontal axis and the price per gallon on the vertical axis. Note that this is an exception to the normal rule in mathematics that the independent variable () goes on the horizontal axis and the dependent variable () goes on the vertical.
Demand curves will be somewhat different for each product. They may appear relatively steep or flat, and they may be straight or curved. Nearly all demand curves share the fundamental similarity that they slope down from left to right, embodying the law of demand: As the price increases, the quantity demanded decreases, and, conversely, as the price decreases, the quantity demanded increases.
The difference between demand and 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 a specific point on the curve.
Want to join the conversation?
- I understand that it has become standard practice for the reversal of x and y axises with these kind of curves, but I wonder if anyone can explain where this tradition started.(123 votes)
- No one actually seems to know. Some suggest that it was because early economists thought that quantity was the independent variable, and that everything has an innate price. I myself am skeptical of that: economists wouldn't have curves to graph if everything had an innate price. One thing I myself have found is that it starts to make a lot more sense later in the course when you treat the demand curve as a marginal benefit curve.(109 votes)
- I still don't get what is meant by "the relationship between a range of prices and the quantities demanded at those prices." Is the relationship they are talking about a proportion of sorts? I am so confused!(5 votes)
- It's not a proportion, because proportion has a specific meaning.
If you draw any line on a graph, that line represents a relationship between the variable on the x axis and the variable on the y -axis. That's all we are doing here. Quantity on one axis, price on the other. The line we draw tells us what the relationship is between those two qiantieis.(9 votes)
- So demand is the total collection of units available over a range of prices while quantity demanded is a the total collection of units available in a certain price. Right?(6 votes)
- how can economists determine the quantity demanded at each different price and thus make a demand schedule ?(4 votes)
- ahaha that's an excellent question! There's not really a way to do that, right? So we have to make some estimates and assumptions. It's important to remember that all of economics - and the conclusions people draw from applying it - depends on the assumptions you make.(7 votes)
- could this relationship between the demand and price be considered an inverse relationship?(6 votes)
- Yes, this relation between the quantity demanded and the price is an inverse relationship as per the Law of Demand.(2 votes)
- In my recent school, there was an argument concerning Economics being a natural science or a social science. I am genuinely confused by this, because economists study human behavior and have hypothesis (that's a part of natural science)
So does this mean that Economics is a natural or social science?(5 votes)
- So demand is the total collection of units available over a range of prices while quantity demanded is the total collection of units available in a certain price. Right?(4 votes)
- emm... some kind
That's my understanding
Demand: The whole demand curve curve corresponds to a kind of demand, is a set of relations between the price and the quantity demanded,meaning a relationship
Quantity demanded: a point on the demand curve whose corresponding horizontal coordinate is called quantity demanded, meaning a value(2 votes)
- I would like to understand total revenue, what is the essence of total revenue, total expenditure. And I`d beter know about price, enterprise.Well learning economics is so important for me.(3 votes)
- kindly give me an example to understand the difference between demand and quantity demanded.?(1 vote)
- Think of jeans--a specific pair of jeans (skinny, dark wash, from Coolest Jeans Inc.).
The demand is the relationship between price and quantity demanded--at any and every given price, how many jeans will people buy? Demand is the whole curve, or the whole graph.
The quantity demanded is how many jeans will people buy at a specific price!(6 votes)
- how would you describe a scuff in the demand curve and what are it's non-price determinants?(3 votes)