Demand is what buyers are willing and able to buy at each price; a lower price raises quantity demanded.
Demand is the quantity of a good that buyers are willing and able to buy at each possible price, over a period of time. Both parts matter. Wanting a sports car is not demand unless you can afford it.
The law of demand says that as price falls, quantity demanded rises, other things being equal. Cheaper goods are more affordable, and they become better value compared with other goods.
A demand curve shows this. It slopes down from left to right. A change in the good's own price causes a movement along the curve. A fall in price causes an extension in demand. A rise in price causes a contraction.
Market demand is the total of all individual buyers' demand. At each price, add up the quantity every buyer would buy.
- Demand
- Quantity buyers are willing and able to buy at each price over a period.
- Extension in demand
- Rise in quantity demanded caused by a fall in price.
- Contraction in demand
- Fall in quantity demanded caused by a rise in price.
- Market demand
- Sum of all individual demand at each price.
| Price ($) | Ali | Bea | Market demand |
|---|---|---|---|
| 5 | 2 | 1 | 3 |
| 4 | 3 | 3 | 6 |
| 3 | 4 | 5 | 9 |
Worked example: Building market demand from two buyers
Suppose a market for bubble tea has only two buyers, Ali and Bea.
- At $5, Ali buys 2 cups a week and Bea buys 1. Market demand is 2 + 1 = 3 cups.
- At $4, Ali buys 3 and Bea buys 3. Market demand is 6 cups.
- At $3, Ali buys 4 and Bea buys 5. Market demand is 9 cups.
- Plot price against these totals to draw the market demand curve.
Watch out for this
When the price of a good falls, demand increases.
A fall in the good's own price causes an extension in demand: a rise in quantity demanded along the same curve. "An increase in demand" means the whole curve shifts, which needs a non-price cause.
Check your understanding
The price of concert tickets falls. What happens?
- Quantity demanded extends: a movement down along the demand curve.
- Demand increases: the demand curve shifts right.
- Demand decreases because sellers earn less.