Demand is a schedule that shows the various amounts of a product that consumers are willing and able to buy at varying prices. Demand is graphically represented by a demand curve which plots price on the vertical axis and quantity demanded of a given product on the horizontal axis (see figure). The demand curve is always downward sloping because of the law of demand, which states that as price falls, quantity rises and as price rises, quantity falls. There are three explanations for the inverse relationship between price and quantity: diminishing marginal utility, income effect and the substitution effect. Because of the law of demand, price and quantity are inversely related, which leads to the downward slope of the demand curve.

Demand can also be represented in a table consisting of pairs of price and quantity demanded values. The demand curve represents the same information as the table, in a clearer and more concise way. Movement along the demand curve caused by a change in price is called a change in quantity demanded. A shift in the whole demand curve, causing it to move up and down, is called a change in demand. Causes for changes in demand are called determinants of demand.

Demand Curve:
external image MkDm33.gif&usg=AFQjCNHigAFyn1Co7rwzhsQa-hYWBxQgYg

Sample Question:

Why is the demand curve downward sloping?
(Answer after the video)

Rising gas prices illustrates the concept of the demand curve. When prices rise, demand for gas goes down and thus consumption decreases.

A: Because of the law of demand. Price and Quantity demanded are inversely related.