Demand Curve

What is a Demand Curve?

A demand curve is a graphic representation of the relationship between price and quantity. It indicates the different quantities of a commodity demanded at different prices. 

The demand curve slopes downward from left to right, showing that more will be bought at lower prices than at higher prices. This means that quantity demand rises as price falls.

It also means that an increase in price causes a fall in quantity demanded, that is, quantity demanded rises as price falls. A normal demand curve is negatively sloped and concave to the point of origin.

The result of the inverse relationship between price and quantity demanded is the negative slope of the demand curve. It can also be said that the slope of the demand curve is downward which highlights the inverse relationship between price and quantity demanded.

Note: The demand curve is derived from a demand schedule, as discussed in the previous topic.

For example, the schedule below is based on a survey of college students who indicated how many bottles of Coke they would buy in a week, at various prices.

Quantity demanded tends to be lower at higher prices. This relationship is easiest to see when a graph is plotted, as shown below:

Calculating Slope:

Since slope is defined as the change in the variable on the y-axis divided by the change in the variable on the x-axis, the slope of the demand curve equals the change in price divided by the change in quantity.

The slope formula = \( \frac{y_2\:-\: y_1}{x_2\:-\:x_1} \\ = \frac{P_2\:-\: P_1}{Q_2\:-\:Q_1} \)

To calculate the slope of a demand curve above, take two points on the curve. For example, use the two points labeled in the diagram above.

Between those points, the slope is: \( \frac{40\:-\:60}{800\:-\:400} \\ = \frac{-20}{400} \\ = \scriptsize -0.05 \)

Since this demand curve is a straight line, the slope of the curve is the same at all points.