Demand Curve (Define, Why Is It Downward Sloping)


Demand Curve

Definition: A graph that shows the amount people are willing and able to buy at various prices. It is also a graphical representation of the Demand Schedule. (also shown below)

Characteristic: Demand curve is downward sloping because of the inverse proportion between prices and quantity demanded. As the price increases, the less quantity demanded and as the price decreases, the more quantity demanded.

Reasons:
  • Income effect - when prices are lower; we have more real income left over to buy goods, more buying power.
  • Substitution Effect - when we have two choices between goods that we see as substitute (gives us same satisfaction), we choose the cheaper one.

Figure 1: Demand Curve

external image downward.gif

Figure 2: Demand Schedule

P
QD
$10
0
$8
5
$6
10
$4
15
$2
20

REFERENCES:

Dr. Stephanie Powers, "Circular Flow", (class notes, PowerPoint presentation slide no. 11, accessed April 15, 2012).

www2.yk.psu.edu. Accessed April 15, 2012. http://www2.yk.psu.edu/~dxl31/econ14/lecture22.html