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Demand in Economics: Definition & Concept

Demand in Economics: Definition & Concept
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  • 0:01 What is Demand?
  • 0:33 Demand Curve
  • 2:19 Shifts in Demand
  • 3:48 Giffen Good
  • 4:20 Lesson Summary
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Lesson Transcript
Instructor: Kallie Wells
Have you ever found yourself buying more of an item when it goes on sale, or less of it when the price increases? In this lesson, you will be introduced to one of the main concepts in economics - demand.

What Is Demand?

Demand in economics is defined as consumers' willingness and ability to consume a given good. An increase in price will decrease the quantity demanded of most goods. A decrease in price will increase the quantity demanded of most goods. The inverse relationship between price and quantity demanded of a good is known as the law of demand and is typically represented by a downward sloping line known as the demand curve.

Demand Curve

The demand curve shows the quantity demanded of a given product at varying price points, holding all else constant. For most goods, this is a downward sloping line. Every individual person has his or her own demand curve for a given product. How many quarts of ice cream would you consume mid-summer at $1/quart, $5/quart, and $10/quart? Your responses to these price points would create your individual demand curve for ice cream mid-summer. Your best friend may have had slightly different quantities at each price, either as a result of varying income levels or personal preferences. Aggregating all individual demand curves for ice cream mid-summer would create the market demand curve for that product.

Assume this demand curve is your individual demand curve for ice cream mid-summer. At $5/quart, the quantity demanded by you is 6 quarts, represented by point A on the chart. If the price were to increase to $10/quart, the quantity demanded by you would decrease to 1 quart (point B). If the price decreases to $2/quart, the quantity demanded by you would be 9 quarts (point C).

Example Ice Cream Demand Curve

Moving from point A to B or C is not a change in demand but rather movements along the demand curve, shown by the green arrows. Your demand, willingness and ability to consume ice cream at varying price points, holding all else constant, did not change. Only the price of ice cream changed, which prompted a change in how many quarts you would consume, the quantity demanded, of ice cream. In other words, the amount you would consume moved from point A on the demand curve to a different point on the same demand curve as a result of changes in price.

Shifts in Demand

Up to this point, whenever we referred to a change in quantity demanded as a result of a change in price, it was caveated with 'holding all else constant'. What happens to demand when those other factors are not held constant? Consider again the demand for ice cream mid-summer. Other factors that may also help shape your demand probably include income and temperature. The image represents how your demand may shift as the other factors, such as income and temperature, change.

Example Shift in Demand for Ice Cream

If it were an extremely hot summer, you would most likely consume more ice cream, even if the price remained at $5/quart. This would cause your demand curve to shift out, represented by line D. The increase in temperature shifted demand outward, resulting in an increase in quantity demanded at all price points, relative to the quantity demanded during a typical summer. At $5/quart, you would consume 8 quarts (point D) as opposed to 6 (point A), creating an outward shift in demand.

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