Demand
What is Demand?
Demand is the willingness and ability of consumers to buy different quantities of a good at different prices, holding all else constant.
The demand for a good represents the different quantities consumers are willing and able to purchase at each price level. Demand is determined by factors like consumer income, preferences, and the prices of related goods. The law of demand states that demand curves slope downward, showing an inverse relationship between price and quantity demanded.
Demand: a worked example
Market demand is the horizontal sum of individual demands, so add quantities at each price, never prices at each quantity. Suppose only two buyers exist for a used textbook. At $30, Ana buys 3 and Ben buys 1, giving a market quantity demanded of 4. At $20, Ana buys 5 and Ben buys 4, giving 9. At $10, Ana buys 8 and Ben buys 7, giving 15. Plot the pairs ($30, 4), ($20, 9) and ($10, 15) and the curve slopes downward, which is the law of demand at work. Between $30 and $20 the market gains 5 units for a $10 price cut, and between $20 and $10 it gains 6 more. Willingness alone is not demand: a buyer who wants a book at $10 but holds no money contributes nothing to this schedule, because demand requires willingness and ability together.
The mistake students make with demand
Two errors dominate. The first is treating demand as a single number, as in saying demand is 40 units. Demand is the entire schedule of quantities across all prices, so one lone quantity is a quantity demanded at one specific price. The second is stacking the two curves vertically, adding what Ana would pay for a unit to what Ben would pay and plotting the sum as one market price. Horizontal summation is the rule: fix the price at $20, add her 5 units to his 4, and plot 9 units at $20. Vertical summation belongs to public goods, not to ordinary market demand.
Demand questions
Why does the demand curve slope downward?
Two forces pull the demand curve down. The substitution effect means a higher price for one good sends buyers toward alternatives that now look cheaper by comparison. The income effect means a higher price shrinks what a fixed budget can buy, so buyers purchase less overall. Diminishing marginal utility reinforces both, since each additional unit delivers less satisfaction and buyers will pay less for it. Together they produce the inverse relationship the law of demand describes.
Does wanting something count as demand?
Wanting something counts as demand only when ability to pay backs it up. A student who would love a $90 graphing calculator but holds $12 in her account adds nothing to the demand schedule at $90. Economists call the purchasing-power version effective demand, which is why definitions pair the word willing with the word able. That same student may appear on the schedule at $12, where her willingness and her budget finally overlap.
How do individual demand curves become a market demand curve?
Market demand comes from horizontal summation. Pick a price, add the quantity every buyer would purchase at that price, plot the total, then repeat for each price and connect the points. With Ana buying 8 and Ben buying 7 at $10, market quantity at $10 is 15. Because each individual curve slopes downward, the market curve does too, and it is flatter, since every price cut now pulls extra units out of several buyers at once.
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Related terms
Common comparisons
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