Simple Economics on the Web

 Your handy guide to economics


Demand Curve

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.

 

Created by Frank Levy and Myounggu Kang
Last Updated on September 26, 2003