Demand
In the previous post, I discussed the supply curve. This post will introduce the demand curve.
The demand curve is plotted on the same axes as the supply curve: price on the vertical axis and quantity on the horizontal. Unlike supply, the demand curve slopes downwards. This means that there is more demand for goods when the price is lower.
Economists usually define the demand in a market as the consumers' "willingness to pay". This is a useful way of looking at the demand curve. Let's look at an example.
Once again we will use oranges. Imagine I have just returned from a long sailing trip - long because I got lost, but finally found my way home. During the trip I ran out of fresh food and resorted to eating canned food. I am craving, among other things, citrus fruit in order to ward off scurvy. As I am tying up my boat I see a pop-up fruit vendor on the docks. The vendor is selling oranges at $2 a piece. I am more than happy to pay $2 for this orange and I devour it without a care.
One orange is not enough for me, I have not had any fruit in a long time and so I hand over another $2 for an orange and it is gone almost as quickly as the first. These oranges are very good and I desire a third. However, $2 is pretty expensive for one piece of fruit. Despite the cost, I purchase another orange. This time, I eat a little slower. I am still enjoying the orange, but I am starting to think about all the packing up I have to do and then I want to go home and have a long, hot shower. The orange vendor calls over to me and asks if I want to buy another. I think about this for a few seconds. I would like another orange and I am sure it would be good for me, but at $2 a piece, there are other things I could be spending my money on. I decline to purchase another and go back to pack up my equipment.
A few minutes pass and the vendor comes up to me. He says he is packing up for the day and am I sure I don't want to purchase the orange. "Not at $2", I say. He asks what I would be willing to pay to purchase one more orange. I say that I have already had three oranges and I can wait to get my fill of vitamin C, although if the orange was to cost 50 cents, I could be convinced to purchase and eat one more.
Regardless of whether the orange vendor agrees to sell me the orange, my willingness to pay for the fourth orange is less than for the first three. Hence, when represented on a graph, the demand curve slopes down.
Just like the supply curve, there are some specially shaped demand curves. Horizontal demand curves represent a situation where consumers are willing to consume an ever increasing number of items, provided they are offered at the same price as the previous quantity. Vertical demand curves represent a situation where consumers will purchase the same quantity of items regardless of the price.
The demand curve is plotted on the same axes as the supply curve: price on the vertical axis and quantity on the horizontal. Unlike supply, the demand curve slopes downwards. This means that there is more demand for goods when the price is lower.
Economists usually define the demand in a market as the consumers' "willingness to pay". This is a useful way of looking at the demand curve. Let's look at an example.
Once again we will use oranges. Imagine I have just returned from a long sailing trip - long because I got lost, but finally found my way home. During the trip I ran out of fresh food and resorted to eating canned food. I am craving, among other things, citrus fruit in order to ward off scurvy. As I am tying up my boat I see a pop-up fruit vendor on the docks. The vendor is selling oranges at $2 a piece. I am more than happy to pay $2 for this orange and I devour it without a care.
One orange is not enough for me, I have not had any fruit in a long time and so I hand over another $2 for an orange and it is gone almost as quickly as the first. These oranges are very good and I desire a third. However, $2 is pretty expensive for one piece of fruit. Despite the cost, I purchase another orange. This time, I eat a little slower. I am still enjoying the orange, but I am starting to think about all the packing up I have to do and then I want to go home and have a long, hot shower. The orange vendor calls over to me and asks if I want to buy another. I think about this for a few seconds. I would like another orange and I am sure it would be good for me, but at $2 a piece, there are other things I could be spending my money on. I decline to purchase another and go back to pack up my equipment.
A few minutes pass and the vendor comes up to me. He says he is packing up for the day and am I sure I don't want to purchase the orange. "Not at $2", I say. He asks what I would be willing to pay to purchase one more orange. I say that I have already had three oranges and I can wait to get my fill of vitamin C, although if the orange was to cost 50 cents, I could be convinced to purchase and eat one more.
Regardless of whether the orange vendor agrees to sell me the orange, my willingness to pay for the fourth orange is less than for the first three. Hence, when represented on a graph, the demand curve slopes down.
Just like the supply curve, there are some specially shaped demand curves. Horizontal demand curves represent a situation where consumers are willing to consume an ever increasing number of items, provided they are offered at the same price as the previous quantity. Vertical demand curves represent a situation where consumers will purchase the same quantity of items regardless of the price.
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