Demand Curve

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Definition of a Demand Curve:

A demand curve is the graph showing how much of a good or service consumers would purchase at different prices over a specified period of time.

Detailed Explanation:

You can plot your individual demand curve for any good or service. Create a table (demand schedule) with the number of a good or service you would purchase at different prices over a defined period of time. For example, you may make a table with how many soft drinks you would purchase in a month if the price of a can cost $0.25, $0.50, and $1.00. Plot a graph, with the price of the good on the vertical axis, and the quantity demanded on the horizontal axis. It is likely your demand curve for soft drinks will slope downward because you would purchase fewer at higher prices. Perhaps you would substitute water for a soft drink as the price increases. The demand curve illustrates the law of demand, which states that other things being equal, the price and quantity demanded of a good or service are inversely related, so as the price of a good increases, the quantity demanded decreases and vice versa. 

Reading the demand curve below we can determine the number of babysitting hours the Oak Grove community will want at any price. For example, at $10 per hour, 20,000 hours would be demanded, but at $5, residents would be willing to purchase 45,000 hours.

Demand Curve Chart

The demand curve may shift if an outside event changes consumers' willingness to buy a good or service at all prices. These include a change in the price of a related good such as a substitute or complement, a change in income, a change in tastes or preferences, a change in future expectations, or a change in the number of consumers. An increase in demand causes the curve to shift to the right. More of the good or service would be purchased at every price. A decrease in the demand causes a shift to the left. Less would be purchased at every price. Note that a change in the price of the good does shift the demand curve. Instead, it causes movement along the demand curve. Economists refer to this as a change in the quantity demanded.

Dig Deeper With These Free Lessons:

Demand – The Consumer's Perspective
Supply and Demand – Producers and Consumers Reach Agreement
Price Elasticity of Demand – How Consumers Respond to Price Changes
Supply and Demand – The Costs and Benefits of Price Controls
Managing Supply Using Tariffs, Subsidies, Quotas & Licenses
Understand a Stock's Performance Using Supply and Demand

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