Simple Economics on the Web
Your handy guide to economics
Demand curves tell us how many units of a product consumers are willing to buy at different prices. The typical demand curve slopes down: As the price falls, the quantity demanded rises. This is called a Movement Along the Demand Curve.
Demand for a product is also driven by variables other than price including the consumer’s income and the price of substitute goods. We draw a demand curve – a two variable relationship between quantity demanded and price – by holding these other variables constant. When one or more of these other variables changes, the whole price-quantity relationship moves. This is called a Shift in the Demand Curve.
Use the first two bars on the right to see examples of how these “other” variables shift a demand curve.
In many situations, it is important to know by how much demand increases as price falls – i.e. the sensitivity of demand to price. The measure of this responsiveness is the demand curve’s elasticity – the percentage change in quantity demanded caused by a one percent change in price.
Use the third bar on the right to see how changing elasticity alters the position of the demand curve.