Demand Curve

What Is the Demand Curve?

The demand curve is a graphical representation of the relationship between the price of a decent or service and the quantity demanded for a given period of time. In a common representation, the price will show up on the left vertical pivot, the quantity demanded on the horizontal hub.

Understanding the Demand Curve

The demand curve will move descending from the left to the right, which communicates the law of demand — as the price of a given commodity increases, the quantity demanded diminishes, all else being equivalent.

Note that this definition suggests that price is the independent variable, and quantity the dependent variable. In many disciplines, the independent variable shows up on the horizontal or x-pivot, yet economics is an exception to this rule.

For instance, assuming the price of corn rises, consumers will have an incentive to buy less corn and substitute it for different foods, so the all out quantity of corn consumers demand will fall.

Demand Elasticity

The degree to which rising price converts into falling demand is called demand elasticity or price elasticity of demand. In the event that a half rise in corn prices causes the quantity of corn demanded to fall by half, the demand elasticity of corn is 1. In the event that a half rise in corn prices just declines the quantity demanded by 10%, the demand elasticity is 0.2. The demand curve is shallower (nearer to horizontal) for products with more flexible demand, and more extreme (nearer to vertical) for products with less versatile demand.

In the event that a factor other than price or quantity changes, another demand curve should be drawn. For instance, say that the population of an area detonates, expanding the number of mouths to feed. In this scenario, more corn will be demanded even assuming the price continues as before, implying that the actual curve shifts to the right (D₂) in the graph below. At the end of the day, demand will increase.

Different factors can shift the demand curve too, like a change in consumers' inclinations. Assuming social shifts make the market evade corn for quinoa, the demand curve will shift to one side (D₃). On the off chance that consumers' income drops, decreasing their ability to buy corn, demand will shift left (D₃). If the price of a substitute — according to the customer's point of view — increases, consumers will buy corn all things considered, and demand will shift right (D₂). In the event that the price of a supplement, for example, charcoal to barbecue corn, increases, demand will shift left (D₃). If the future price of corn is higher than the current price, the demand will briefly shift to the right (D₂), since consumers have an incentive to buy now before the price rises.

The wording encompassing demand can befuddle. "Quantity" or "quantity demanded" alludes to the amount of the great or service, for example, ears of corn, bushels of tomatoes, accessible lodgings or hours of labor. In ordinary use, this may be called the "demand," yet in economic theory, "demand" alludes to the curve displayed above, signifying the relationship between quantity demanded and price per unit.

Exceptions to the Demand Curve

There are a few exceptions to rules that apply to the relationship that exists between prices of goods and demand. One of these exceptions is a Giffen good. This is one that is viewed as a staple food, similar to bread or rice, for which there is no suitable substitute. In short, the demand will increase for a Giffen decent when the price increases, and it will fall when the prices drops. The demand for these goods are on a vertical slant, which conflicts with the laws of demand. Hence, the regular response (rising prices triggering a substitution effect) won't exist for Giffen goods, and the price rise will keep on pushing demand.