Demand curve

An example of a demand curve

In economics, the demand curve can be defined as the graph depicting the relationship between the price of a certain commodity, and the amount of it that consumers are willing and able to purchase at that given price. The demand curve for all consumers together follows from the demand curve of every individual consumer: at each price the individual demands are added together.

Demand curves are used to estimate behaviors in competitive markets, and are often combined with supply curves to estimate the equilibrium price (the price at which all sellers are able to find a willing buyer, also known as market clearing price) and the equilibrium quantity (the amount of that good or service that will be produced and bought without surplus/excess supply or shortage/excess demand) of that market.

See the article on supply and demand for more details.

The demand curve usually slopes downwards from left to right; that is, it has a negative association (for two theoretic exceptions, see Veblen good and Giffen good). The negative slope is often referred to as the "law of demand," which means that when all things but price are held equal, if the price of the good/service increases, the less of that good/service will be purchased by consumers.

If for a consumer the marginal utility of a good increases initially as function of amount (see examples) the individual demand curve may have a discontinuity, where, after decreasing with price as usual, the demand jumps to zero. This is at the price where the consumer surplus has decreased to zero.

Demand schedule

Demand schedules are tables that contain experimentally obtained information of buying habits at varied prices. From these data a demand curve is then estimated and graphed, usually with the amount of a good or service demanded graphed to the x axis (often named in equations as "Q") and the price at which the good or service would be purchased on the y axis (often named in equations as "P").

Change in quantity demanded

Points on the demand curve show the quantity demanded at the given price of the good or service. The movement along the demand curve occurs when price changes and everything else (determinants of demand such as income, customer preference, prices of complementary and substitute goods/services) remains the same, so it shows a change in quantity demanded.

Change in demand

A change in one of the factors other than price (determinants of demand) will cause a change in demand (shift in the demand curve), and the expected behavior of that market.

Increase in demand shifts the demand curve to the right. Increase in demand can be caused by, for example, decrease in price of complementary good or increase in income. Decrease in demand shifts it to the left. Decrease can be caused by, for example, expectations of lower future prices or decrease in population and market size.

See also

• Wikiversity:Building the demand curve
• Benefit shortfall – results from the actual benefits of a venture being lower than the projected, or estimated, benefits of that venture