Demand Curves in Economics are the graphical representation of the relationship between the price of a commodity or service and its quantity demanded at a given period of time. In the graphical representation, the price of the commodity/service is mentioned on the Y axis and the quantity demanded of the commodity is mentioned on the X axis. There are generally two types of demand curves in Economics– Individual Demand Curve and Market Demand Curve. The demand curve that shows the price-quantity relationship for an individual consumer is known as Individual Demand Curve. The demand curve that shows the price-quantity relationship for all the consumers in the market is called the Market Demand Curve.
The equation for the liner demand curve is as follows:
Qd = a – b(P)
Where,
Qd= quantity demanded
- a= all factors affecting change in demand other than the price of the commodity (e.g. Change in fashion, income, price of related goods)
- b= slope of demand curve
- P= price of the commodity
Shape of the Demand Curve
In Economics, Subject to certain assumptions, the demand curve usually slopes downwards due to the Law of Demand. Law of Demand states that other things being constant, there is an inverse relationship between the price of the commodity and its quantity demanded, which means, when the price of a commodity rises, the demand for that commodity will fall and vice-versa.
Assumptions-
- Income of the consumer remains constant
- There is no change in the price of the related goods.
- The taste and preferences of the consumers remain constant. There is no change in the fashion.
- The commodity is a normal good
For example, A consumer demand 8 units of Commodity A at Rs. 10 per unit. When the price of the Commodity A increases from Rs. 10 to Rs. 15 per unit, the demand of the consumers falls from 8 units to 6 units
Movements Along the Demand Curve
The movements along the demand curves in economics refers to a situation where the quantity demanded of a commodity changes due to the change in the price of the commodity, other things being constant. In this case, the change in price affects the quantity demanded but demand curve remains the same, there is only an upward or downward movement in the demand curve.
- Extension of Demand: When the fall in the price of the commodity leads to an increase in the quantity demanded of the commodity, it refers to the extension of demand. In this case, there is a downward movement in the demand curve.
- Contraction of Demand: When the increase in the price of the commodity leads to a decrease in the quantity demanded of the commodity, there is a contraction of demand. In this case, there is an upward movement in the demand curve.
Shift in the Demand Curve
The Shift in the demand curves in economics refers to a situation in which there is an increase or decrease in the quantity demanded of a commodity due to facts other than the price of the commodity. The price of the commodity remains the same. The facts that can result in the shifts in demand include income of the consumer, taste and preferences, change in fashion, near expectations, and price of related goods.
- Increase in Demand: When there is an increase in the quantity demanded of a commodity due to factors other than price (price remaining constant), it is called an increase in demand. In this case, there is an outward shift in the demand curve (demand curve shifts to right). Example, If there is an expectation of increase in the price of Commodity ‘A’ in near future, the demand for it will increase, even at the prevailing price.
- Decrease in Demand: When there is a decrease in the quantity demanded of a commodity due to factors other than its price, it is called a decrease in demand. In this case, there is an inward shift in the demand curve (demand curve moves to the left). Example, If there is an expectation of decrease in price of commodity ‘A’ in near future, the demand for it will fall, even at the prevailing price.
