Demand
Demand, Demand Schedule, Curve and the Law of Demand
In economics, demand means the quantity of a good that a consumer is willing and able to buy at a given price during a given period of time. Mere desire is not demand — it must be backed by the ability to pay (money) and the willingness to spend it. Individual demand is the demand of a single consumer; market demand is the total demand of all consumers in the market.
A demand schedule is a table showing the quantities demanded at different prices. When these are plotted on a graph (price on the vertical axis, quantity on the horizontal axis), we get the demand curve, which slopes downward from left to right:
Demand needs more than a wish.
- Desire must be backed by the ability to pay and the willingness to spend.
- Without these, it is only a want, not demand.
One vs all.
- Individual demand is the demand of a single consumer.
- Market demand is the total demand of all consumers.
Price and quantity move oppositely.
- As price falls, quantity demanded rises (and vice versa).
- This inverse relation gives a downward-sloping curve.
Key Points
- Demand = quantity a consumer is willing and able to buy at a given price in a period (desire + ability + willingness).
- Individual vs market demand (all consumers).
- Demand schedule (table) → demand curve (downward sloping: price ↓ → quantity ↑).
The Law of Demand and Its Determinants
The relationship just described is summed up in the Law of Demand: other things remaining constant, as the price of a good falls, its quantity demanded rises, and as the price rises, its quantity demanded falls. Price and quantity demanded move in opposite directions. The phrase "other things remaining constant" (ceteris paribus) is crucial — the law holds only if the other factors that affect demand do not change.
What are those other determinants of demand? Besides the price of the good itself, demand depends on:
- Income of the consumer — usually, higher income raises demand (for normal goods).
- Prices of related goods — for substitutes (tea and coffee) a rise in one's price raises demand for the other; for complements (car and petrol) a rise in one's price lowers demand for the other.
- Tastes and preferences — fashion, advertising and habits.
- Expectations — if prices are expected to rise, people buy more now.
- Size and composition of population — more buyers raise market demand.
The law of demand applies to most goods, but there are a few exceptions where more is bought even at higher prices: Giffen goods (very inferior necessities like a cheap staple food), goods of status/prestige (like diamonds, bought to show off — Veblen goods), cases of expected future price changes, and ignorance where people judge quality by price. In these special cases the demand curve may slope upward.
Inverse relation, other things constant.
- Other things remaining constant, as price falls quantity demanded rises, and as price rises quantity demanded falls.
Substitutes move together in demand.
- People switch from costlier tea to coffee.
- So the demand for coffee rises.
Some goods defy the law.
- Status/prestige goods (e.g. diamonds) — bought more at higher prices to show wealth.
- (Also Giffen goods, expected price changes, ignorance.)
Key Points
- Law of Demand: ceteris paribus, price ↓ → quantity demanded ↑ (and vice versa) — inverse relation.
- Determinants: own price, income, prices of related goods (substitutes/complements), tastes, expectations, population.
- Exceptions: Giffen goods, status/prestige (Veblen) goods, expected price changes, ignorance.
Movement Along vs Shift in the Demand Curve
It is vital to distinguish two different ways demand can change, because students often confuse them.
Movement along the demand curve happens when the price of the good itself changes, while everything else stays the same. We simply slide from one point to another on the same curve:
- A fall in price → a movement downward along the curve → more quantity demanded. This is called an extension (or expansion) of demand.
- A rise in price → a movement upward along the curve → less quantity demanded. This is called a contraction of demand.
Shift in the demand curve happens when a factor other than the price of the good changes (income, prices of related goods, tastes, etc.). The whole curve moves to a new position:
- If more is demanded at the same price (e.g. income rises) → the curve shifts to the right — an increase in demand.
- If less is demanded at the same price → the curve shifts to the left — a decrease in demand.
The simple rule: a change in the good's own price causes a movement along the curve; a change in any other determinant causes a shift of the curve. Keeping this distinction clear is one of the most important skills in microeconomics.
Own price changed.
- A change in the good's own price causes a movement along the curve.
- A price fall is a downward movement (extension of demand).
A non-price factor changed.
- More is demanded at the same price.
- The whole curve shifts to the right (increase in demand).
It is about what changed.
- Change in own price → movement along the curve.
- Change in any other determinant → shift of the curve.
Key Points
- Movement along the curve = change in the good's own price: price↓ = extension (down), price↑ = contraction (up).
- Shift of the curve = change in other determinants (income, related prices, tastes): right = increase, left = decrease in demand.
- Rule: own price → movement; other factor → shift.