The demand and supply model combines two important concepts which are the demand curve and the supply curve. Let us first discuss about the demand curve.
The Quantity Demanded vs the Demand Curve
By definition, demand is the relationship between the quantity of a good that consumers are willing to buy and the price of the respective good.
Students or people without an economic background often mistake the demand with the quantity demanded.
“Demand” denotes consumer’s willingness and ability to buy a product.
“Quantity Demanded” is the amount of a product that a consumer is willing and able to buy.
More detailed explanations about the difference between the two concepts will be provided in future posts.
The demand curve indicates the quantity of a good that consumers are willing to buy as the price per unit changes. Mathematically, this relationship can be written in the form of an equation as :
The above equation reads as follows: demand is a function of the price of the product. In value terms, demand is equivalent with the quantity demanded multiplied with the price. In most textbooks and economic articles, demand is represented by the letter D.
Graphically you can see the downward sloping demand curve labeled as “D”. The concept behind its downward sloping is simple: The consumer buys more units of the good when the price is low and less units when the price increases. In other words, demand is a negative function of the price.
Other Factors Influencing the Demand curve
There are many factors that can affect the shape of the demand curve in addition to the price of the product. Some of these factors are:
- Consumer’s Income;
- Prices of other goods (Substitutes);
- Prices of related goods (Complementary);
- Tastes and Preferences of Consumers;
- Number of Consumers in the Market;
- Consumer Expectations.
These topics will be discussed in detail in the later posts.