demand curve a line showing the relationship between the PRICE of a PRODUCT or FACTOR OF PRODUCTION and the quantity DEMANDED per time period, as in Fig. 39.
Most demand curves slope downwards because (a) as the price of the product falls, consumers will tend to substitute this (now relatively cheaper) product for others in their purchases; (b) as the price of the product falls, this serves to increase their real income, allowing them to buy more products
(see PRICE EFFECT, INCOME EFFECT, SUBSTITUTION EFFECT). In a small minority of cases, however, products can have an UPWARD-SLOPING CURVE.
The slope of the demand curve reflects the degree of responsiveness of quantity demanded to changes in the product's price. For example, if a large reduction in price results in only a small increase in quantity demanded (as would be the case where the demand curve has a steep slope) then demand is said to be price inelastic (see PRICE-ELASTICITY OF DEMAND).
The demand curve interacts with the SUPPLY CURVE to determine the EQUILIBRIUM MARKET PRICE. See DEMAND FUNCTION, DEMAND CURVE ( SHIFT IN), DIMINISHING MARGINAL UTILITY, MARGINAL REVENUE PRODUCT.
Fig. 40 Demand curve (shift in).
An increase in income shifts the demand curve D1
, increasing the quantity demanded from OQ1
. The magnitude of this shift depends upon the INCOME ELASTICITY OF DEMAND
for the product.
Fig. 39 Demand curve. Demand is the total quantity of a good or service that buyers are prepared to purchase at a given price. Demand is always taken to be effective demand, backed by the ability to pay, and not just based on want or need. The typical market demand curve slopes downwards from left to right, indicating that as price falls more is demanded (that is, a movement along the existing demand curve). Thus, if price falls from OP1 to OP2, the quantity demanded will increase from OQ1 to OQ2 .
demand curve (shift in) a movement of the DEMAND CURVE from one position to another (either left or right) as a result of some economic change other than price. A given demand curve is always drawn on the CETERIS PARIBUS assumption that all the other factors affecting demand (income, tastes, etc.) are held constant. If any of these changes, however, then this will bring about a shift in the demand curve. For example, if income increases, the demand curve will shift to the right, so that more is now demanded at each price than formerly. See Fig. 40 . See also DEMAND FUNCTION, INCOME-ELASTICITY OF DEMAND.