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Demand Curves, Schedules, and Shift Factors

Sarah Sagal, Aaron Hill, Joseph Shinn
  • Author
    Sarah Sagal

    Sarah has a Master’s in Business Administration focused in Business Analytics from Frostburg State University as well as a Bachelor’s in Business Administration with minor in Entrepreneurship and Economics, also from Frostburg State University. She has three years of professional experience in a higher education environment.

  • 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.

  • Expert Contributor
    Joseph Shinn

    Joe has a PhD in Economics from Temple University and has been teaching college-level courses for 10 years.

Understand what a demand curve is. Learn the demand curve definition. Know about market demand curve, demand schedule, and increase in demand with examples. Updated: 04/12/2022

What is a Demand Curve?

A demand curve is a graphical representation of the demand schedule, which shows different levels of prices for a good or service and the quantity demanded at each price over a given time period. Market demand illustrates overall demand within a market rather than demand for a single product. This might be all demand for Ford trucks, or it might be demand for the automotive industry. The market demand curve works the same way as the demand curve in showing the quantity demanded over a particular period of time at various price levels.

The law of demand states that quantity demanded is inversely related to price. In other words, as price goes up, quantity demanded will decrease. As price goes down, quantity demanded will increase. This creates the law that demand curves are always downward sloping. This is because price is on the x-axis and quantity is on the y-axis. In economics, price is the independent variable and quantity demanded is dependent on price.

Demand curves and their relationship with supply help us to understand the market and the reason that things are priced a certain way. The intersection of supply and demand is equilibrium, or where demand is equal to supply. The relationship between these two curves and how they move in response to various factors help us to understand the world around us. Price demand curve might be one way to refer to a demand curve.

Demand Curve Exceptions

There are some case scenarios where the law of demand is broken. One of these is in the case of Veblen goods which actually see an increase in demand when price increases. These tend to be symbols of wealth, such as luxury vehicles. Another type of good that breaks this law is the Giffen good, which sees a rise in demand with price increases and a decrease in demand with price decreases. These items are often essential items, such as wheat or toilet paper. In times of crisis, prices of these essentials may begin to rise and people begin to buy more to stock up for the future. As prices begin to fall back to normal levels, the amount demanded falls as well.

Market Demand Curve vs. Individual Demand Curve

An individual demand curve illustrates the consumption choices of just one person. It is based on the quantity of a good the person would be willing to purchase at a series of various prices. A market demand curve, on the other hand, illustrates all demand for a good within the market. This might be specific, such as Krispy Kreme donuts, or it might be broad, such as baked goods. It illustrates the quantity demanded in total for each possible price level.

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.


Demand Curve
Demand Curve


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.


Market Demand Curve
Market Demand Curve


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What is a Demand Schedule?

A demand schedule is a table showing the quantity demanded of a good at various price levels. Demand schedules are utilized to graph demand curves. Usually, prices are listed in the left column and quantities demanded in the right. Below is a simple example of what a demand schedule looks like.

Price Quantity Demanded
$8 1
$7 2
$6 3
$5 4
$4 5
$3 6
$2 7
$1 8

Keeping price on the y-axis and quantity demanded on the x-axis, each price and quantity combo is graphed like a normal set of coordinates. Keep in mind that the sets need to be reversed since quantity demanded is the x variable and price is the y variable. Doing so produces the demand curve graphed below.


Demand Curve

Image showing a graphic representation of the previous demand schedule


Types of Demand Curves

As previously mentioned, there are two types of demand curves: individual demand curves and market demand curves. The primary difference between these two curves is what they represent. The individual demand curve represents the demand of one consumer at individual price levels. It shows quantity demanded by that single consumer at different prices. Market demand curves illustrate aggregate demand in an entire market at various price levels.

Both look very similar and can be graphed along the same variables, but simply measure different things.

Below is an illustration of a demand curve that could be either an individual demand curve or a market demand curve, depending on the context. Since the numbers are relatively low, it can be assumed to be an individual demand curve, but, depending on the context of the graph, it could be a market graph. One example in which this might be a market graph would be for an out-of-date item, such as an original mobile phone. Over the course of a month, this graph could illustrate market demand for original mobile phones.


Demand Curve

Image showing demand curve


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.


X and Y axis of Demand Curve
Demand curve graph


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!


Demand Curve showing Jerry


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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Video Transcript

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.


Demand Curve
Demand Curve


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.


Market Demand Curve
Market Demand Curve


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.


X and Y axis of Demand Curve
Demand curve graph


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!


Demand Curve showing Jerry


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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Additional Activities

Demand-Curve Shift Additional Practice:

For each of the following scenarios, determine whether the demand curve would increase, decrease, or remain unchanged. Your answer should also describe WHY you believe this is the case.

  1. The impact of a new apartment community in a town on the market for groceries in that down.
  2. The price of pizza increases in the pizza market.
  3. The impact of an increase in the price of pizza on the market for deli sandwiches.
  4. In the market for notebooks, the price of the paper used to produce the notebooks increases.
  5. The impact of an increase in income on the market for at-home meals. Note: At-home meals are inferior goods.
  6. The impact of an increase in income on the market for restaurant meals.


Solutions:

  1. The demand curve will increase because of an increase in the population.
  2. There will be no change to demand, but there will be movement along the curve.
  3. The demand for deli sandwiches will increase because of an increase in the price of a substitute good (pizza).
  4. There will be no impact on the demand curve. The supply curve will decrease, causing the price of notebooks to increase, but the actual demand curve will remain unchanged.
  5. The demand for at-home meals will decrease because these meals are inferior goods (they are inversely related to income).
  6. The demand for restaurant meals will increase because these meals are normal goods (they are positively related to income).
Frequently Asked Questions

What is the demand curve in economics?

A demand curve in economics illustrates a demand schedule, which plots the total quantity demanded at each price level either for an individual or entire market. This is plotted on a graph with price on the y-axis and quantity demanded on the x-axis.

How does a demand curve work?

A demand curve is a graphical representation of a demand schedule, which shows the total quantity demanded by either an individual or entire market at various price levels. A demand curve is not necessarily curved and may be a straight line.

What shifts the demand curve?

Demand curves can be shifted by five different factors. These include preferences, prices of substitute goods, prices of complement goods, seasonal factors and income.

Is a market demand curve horizontal or vertical?

A market demand curve does not have to be horizontal or vertical. A horizontal market curve applies in a perfectly competitive market when the demand curve is set horizontal at the price that firms must accept. This also represents a demand curve that is perfectly elastic. A vertical curve, on the other hand, represents perfectly inelastic demand, which means that demand is constant regardless of price.

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