Unformatted text preview: are
expressing the law of demand, which is
graphically portrayed as a demand curve
(in a textbook). So what do you think?
Do demand curves exist in the real
world? 0 1 2 3 4 Quantity demanded
(b) (a) A demand schedule for a good. Notice that as price decreases,
quantity demanded increases. (b) Plotting the four combinations of price
and quantity demanded from part (a) and connecting the points gives us
a demand curve. Price, on the vertical axis, represents price per unit of a
good. Quantity demanded, on the horizontal axis, always applies to a
specific time period (a week, a month, a year, and so on). Individual Demand Curves
and Market Demand Curves
An individual demand curve and a market demand curve are different. An individual demand curve is what it sounds like: the
demand curve that represents an individual’s demand. For example, Harry’s demand
curve represents Harry’s (and only Harry’s)
demand for, say, DVDs. A market demand
curve is simply the sum of all the different
individual demand curves added together. demand curve
The graphical representation of the law of
demand. Section 1 Understanding Demand 93 04 (086-109) EMC Chap 04 EXHIBIT 4-2 11/17/05 Price of DVDs Sally’s
curve $10 + DHarry
0 Page 94 From Individual Demand Curves to Market Demand Curve
curve $10 4:36 PM 2 + 1 DElizabeth
0 (b) Market
curve $10 = DSally
0 (a) Elizabeth’s
curve $10 3 DAll buyers
6 0 Quantity demanded of DVDs
(c) (d) In parts (a) through (c) you see the individual demand curve for Harry, Sally, and Elizabeth.
The market demand curve, shown in part (d), is simply the sum of the individual demand curves.
Stated differently, we know that at a price of $10 per DVD, the quantity demanded of DVDs is 2 for
Harry, 1 for Sally, and 3 for Elizabeth. It follows that all three buyers together would like to buy 6
DVDs at a price of $10 per DVD. This point is identified on the market demand curve in part (d). E X A M P L E : Suppose that the whole
world has only three buyers of DVDs:
Harry, Sally, and Elizabeth. At a price of $10
per DVD, quantity demanded is 2 for Harry,
1 for Sally, and 3 for Elizabeth. As a result,
the market demand curve would include a
point representing a price of $10 per DVD
and a market quantity demanded of 6
DVDs (2 1 3).
To see this graphically, look at Exhibit 4-2.
In panels (a) through (c) you see the indi- Defining Terms
b. quantity demanded
d. demand schedule
e. demand curve
f. law of demand
2. Use the terms demand
and quantity demanded
correctly in a sentence
about concert tickets. Reviewing Facts
3. State the law of demand. 94 Chapter 4 Demand vidual demand curves for Harry, Sally, and
Elizabeth, respectively. (To keep things simple, we identify only one point on the
demand curve for each person.) Now look at
panel (d). Here you can see the market
demand curve (for all buyers—Harry, Sally
and Elizabeth—of DVDs). Notice that the
point we identify on the market demand
curve simply represents the quantity
demanded of all three buyers together if the
price of a DVD is $10. 4. Give an example of a
demand schedule. Critical Thinking
5. Yesterday the price of a
good was $10, and the
quantity demanded was
100 units. Today the
price of the good is $12,
and the quantity
demanded is 87 units.
Did quantity demanded
fall because the price
increased, or did the
price rise because quantity demanded fell? 6. What does the law of
utility have to do with
the law of demand? Applying Economic
7. Assume that the law of
demand applies to criminal activity. What might
community leaders do to
reduce the number of
crimes committed in the
community? 04 (086-109) EMC Chap 04 5/8/06 4:50 PM Page 95 Focus Questions
What does it mean when a demand curve
shifts to the right?
What does it mean when a demand curve
shifts to the left?
What is a normal good? An inferior good?
A neutral good?
What factors can change demand?
What factor can change quantity demanded? The Demand
Curve Shifts Key Terms
complement Demand can go up, and it can go down.
For example, the demand for orange juice
can rise or fall. The demand for CDs can rise
or fall. Every time the demand changes for a
good, any good, the demand curve for that
good shifts. By shift we mean that it moves; it
moves either to the right or to the left.
For example, if the demand for orange
juice increases, the demand curve for orange
juice shifts to the right. If the demand for
orange juice decreases, the demand curve
for orange juice shifts to the left. EXH IBIT 4-3 Price (dollars per quart) When Demand Changes,
the Curve Shifts Shifts in a Demand Curve
demand curve C $1 A B
0 100 200 300 400 500 600 Quantity demanded of orange juice (quarts) Demand increases → Demand curve shifts rightward
Demand decreases → Demand curve shifts leftward We can understand shifts in demand
curves better with the aid of Exh...
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