Understanding the Demand Curve in Microeconomics

Understanding the Demand Curve in Microeconomics
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  • 0:01 Definition of Demand Curve
  • 0:50 Characteristics of a…
  • 1:55 Creating a Demand Curve Graph
  • 3:00 Movement Along a Curve…
  • 4:25 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Learn what the demand curve in microeconomics is. Find out the common components of the demand curve and how they are created. See what causes a movement along a demand curve and what causes a shift of the entire curve.

Definition of Demand Curve

The rationale and decision-making process you use to determine how many cans of soup, how many bags of chicken, or how many gallons of milk you purchase on a weekly basis can be graphically represented. Why is that important, you might ask? Understanding your decision-making process at different price points helps businesses make decisions on how to price products, whether to advertise, and how much of a specific good to keep in inventory, just to name a few.

One of the basic graphs in microeconomics is referred to as the demand curve and is the curve that shows how much of a good will be bought by consumers at various price points. In microeconomics, we often look at the demand curve for individuals. In macroeconomics, we often focus on the market demand curve, which is simply the sum of all the individual demand curves.

Characteristics of a Demand Curve Graph

The demand curve is graphed with the same axis as a supply curve in order to allow the two curves to be combined into a single graph: the y-axis (vertical line) of the graph is the price, and the x-axis (horizontal line) is the quantity. Just like in macroeconomics, demand curves slope downward because people are willing to buy larger quantities of a good as its price goes down. For example, you may only be willing to buy 1 box of cereal when it sells for $5 a box. When it sells for $4, you may be willing to buy 2 boxes, and when it sells for $3, you may be willing to buy 3 boxes.

The same logic and rationale can be applied to the 12-packs of soda, the clothing, or the movie theater tickets you may purchase in a given week. To sum up, lower prices means higher quantities demanded by individuals. Higher prices means lower quantities demanded.

Creating a Demand Curve Graph

Economics relies heavily on demand and supply graphs. Understanding how they are constructed and work will help you better understand many economic concepts. To think how an individual demand curve is created, we need to first determine how much of a product a person is willing to buy at certain price points.

For example, let's explore Jerry's demand for DVDs. At a price of $2, Jerry will buy 12 DVDs a month. At a price of $3, 10 DVDs; $4, 7 DVDs; at $5, Jerry will buy 5 DVDs; $6, 4 DVDs; $7, 3 DVDs; $8, 2 DVDs and at $10, Jerry will buy just 1 DVD a month. If we then create a simple graph with price on the y-axis and quantity on the horizontal, or x-axis, we can plot each individual point on the graph and then connect the points. You now have a demand curve!

Movement Along a Curve vs. Shifting

Now that we know how an individual demand curve is created, let's explore what might cause us to move along the curve. To simplify, there is movement along a demand curve when a change in price causes the quantity demanded to change.

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