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. 📱