Demand

What Is Demand?

Demand describes how much of a good consumers are willing and able to purchase at each possible price, all else equal. Graphed as a downward-sloping curve, it reflects the law of demand: as price rises, quantity demanded falls. A change in the good's own price causes a movement along the demand curve, not a shift. Non-price determinants shift the whole curve instead: tastes, income, the prices of related goods, expectations, and the number of buyers. Population growth that adds buyers shifts demand right; expectations of a much higher price next month pull purchases forward, also shifting today's demand right.

Why It Matters

Demand is the consumer side of the supply-and-demand model that explains market prices. Distinguishing a shift of demand from a movement along it is essential: only a change in the good's own price moves quantity demanded along a fixed curve, whereas a change in income or tastes relocates the entire curve. That distinction lets economists trace how outside events change equilibrium price and quantity. Demand also connects to related concepts: normal and inferior goods respond differently to income changes, while substitutes and complements link one good's demand to another good's price. Because demand reveals how much buyers value a good at each price, it underlies consumer surplus and the efficiency of competitive markets.

Test Your Knowledge

Questions on this topic from the EconRecall fact bank:

• What does the law of demand state?
  All else equal, as the price of a good rises, the quantity demanded of it falls
• A change in the price of the good itself causes what on a demand graph?
  A movement along the existing demand curve, not a shift of the curve
• Which set correctly lists the standard non-price determinants (shifters) of demand?
  Tastes, income, prices of related goods, expectations, and the number of buyers