Reading: Law of Demand

Breaking Down “Law of Demand”

The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

The chart below depicts the law of demand using a demand curve, which is always downward sloping. Each point on the curve (A, B, C) reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on.

The law of demand is so intuitive that you may not even be aware of all the examples around you.

-When shirts go on sale, you might buy three instead of one. The quantity that you demand increases because the price has fallen.

-When plane tickets become more expensive, you’re less likely to travel by air and more likely to choose the less expensive options of driving or staying home. The amount of plane tickets that you demand decreases to zero because the cost has gone up.

The law of demand summarizes the effect price changes have on consumer behavior. For example, a consumer will purchase more pizzas if the price of pizza falls. The opposite is true if the price of pizza increases. John might demand 10 pizzas if they cost $10 each, but only 7 pizzas if the price rises to $12, and only 4 pizzas if the price rises to $20.

Demand schedule shows the relationship between price and quantity demanded with

all else equal.

Ebook Supply Schedule:

Scenario    Price  Quantity Demanded
A  2.00  60,000
B  4.00  40,000
C  6.00  30,000
D  8.00  25,000
E  10.00  23,000

Based off this demand schedule we can draw a demand curve

Demand vs Quantity Demanded

Quantity Demanded is a figure predicated on the price of a good or service. As prices increase the quantity demanded for that good or service decreases.

Demand itself is predicated on the overall relationship between price and quantity demanded.  In other words demand itself is the entire demand curve.  If actual demand changed we would have a totally different curve that would shift.