Drawing and interpretation of the demand diagram

The Allocation of Resources – Demand

In economics, demand shows how much of a good people want to buy at different prices.

Think of it like a vending machine: the higher the price, the fewer people will buy a snack. 🍫

What is Demand?

Demand is a relationship between the price of a product and the quantity that consumers are willing to purchase.

It is usually represented by the equation:

\$Q_d = a - bP\$

where \$Q_d\$ is quantity demanded, \$P\$ is price, and \$a\$ and \$b\$ are positive constants.

Demand Curve

The demand curve is a downward‑sloping line on a graph where the horizontal axis shows quantity and the vertical axis shows price.

The slope is negative because of the law of demand: as price rises, quantity demanded falls.

Drawing the Demand Curve

1. Choose a range of prices (e.g., \$1 to \$10).
2. Use the demand equation to calculate the quantity demanded at each price.
3. Plot the points on a graph.
4. Connect the points with a smooth, downward‑sloping line.

Interpreting the Diagram

• Movement along the curve – a change in price leads to a change in quantity demanded.
• Shift of the curve – a change in a non‑price factor (e.g., income, tastes) moves the entire curve left or right.
• Elasticity – how steep the curve is tells us how sensitive buyers are to price changes.

Example: Coffee Market

Imagine a student café. When the price of a cup of coffee drops from \$4 to \$2, the number of cups sold rises from 30 to 70.

This illustrates a movement along the demand curve: lower price, higher quantity demanded. ☕️

Quick Check: If the price of a smartphone rises from \$500 to \$600, will the quantity demanded increase or decrease?

Remember: higher price → lower quantity demanded. 📱