Demand Curve
The demand curve is a graph that shows the relationship between the price of a good and the quantity that consumers want and can buy of that good. It illustrates the quantity demanded at each possible price and is plotted under the assumption that all other factors affecting the quantity demanded, aside from the price, remain constant.
Graph of the Demand Curve
The graph displays the demand curve, with the price of the good on the vertical axis and the quantity demanded on the horizontal axis. When the price decreases, the quantity demanded increases. For example, at point A, when the price is 80, the demand curve intersects the vertical axis, and consumers are unwilling to buy any units of the good. However, when the price drops to 60, consumers are willing to buy 200 units of the good, as seen at point C on the curve. Similarly, when the price drops to 40, the demand increases to 400 units at point D, and so on. Hypothetically, if the price of the good were zero, the demand curve would intersect the horizontal axis, indicating that consumers would demand a maximum of 800 units.
Conversely, when the price increases, the quantity demanded decreases. The graph shows that when the price rises from 20 to 60, the quantity demanded falls from 600 to 200 units, shifting from point E to point C. Therefore, the demand curve illustrates the quantity that consumers are willing to buy at each possible price.
In summary, higher prices result in lower quantities demanded, and lower prices result in higher quantities demanded. The intercept on the Y-axis shows the price at which demand is zero, and the intercept on the X-axis shows the maximum quantity demanded if the price were zero.
Inverted Axes
Typically, the independent variable is plotted on the horizontal axis and the dependent variable on the vertical axis. However, in the demand curve graph, the price (the independent variable) is placed on the vertical axis, and the quantities (the dependent variable) are on the horizontal axis since the quantity demanded depends on the price, but the price does not depend on the quantity demanded.
Slope of the Demand Curve
The demand curve is plotted under the assumption that all other factors affecting the quantity demanded of the good, such as income and the prices of other goods, remain constant. Therefore, the curve only shows the relationship between price and quantity demanded. Due to this inverse relationship—higher prices result in lower quantities demanded, and lower prices result in higher quantities demanded—the slope of the demand curve is negative.
In conclusion, the demand curve answers the question: what happens to the quantity demanded as the price changes, keeping all other factors constant?.