A graphical representation of how many units of a good or service will be purchased at each possible price Show
What is a Demand Curve?The demand curve is a line graph utilized in economics, that shows how many units of a good or service will be purchased at various prices. The price is plotted on the vertical (Y) axis while the quantity is plotted on the horizontal (X) axis. Demand curves are used to determine the relationship between price and quantity, and follow the law of demand, which states that the quantity demanded will decrease as the price increases. In addition, demand curves are commonly combined with supply curves to determine the equilibrium price and equilibrium quantity of the market.  Drawing a Demand CurveThe demand curve is based on the demand schedule. The demand schedule shows exactly how many units of a good or service will be purchased at various price points. For example, below is the demand schedule for high-quality organic bread: It is important to note that as the price decreases, the quantity demanded increases. The relationship follows the law of demand. Intuitively, if the price for a good or service is lower, there is a higher demand for it. From the demand schedule above, the graph can be created: Through the demand curve, the relationship between price and quantity demanded is clearly illustrated. As the price for notebooks decreases, the demand for notebooks increases. Shifts in the CurveShifts in the demand curve are strictly affected by consumer interest. Several factors can lead to a shift in the curve, for example: 1. Changes in income levelsIf the good is a normal good, higher income levels lead to an outward shift of the demand curve while lower income levels lead to an inward shift. When income is increased, the demand for normal goods or services will increase. 2. Changes in the market’s sizeA growing market results in an outward shift of the demand curve while a shrinking market results in an inward shift. A larger market size results from more consumers. Therefore, the demand (due to more consumers) will increase. 3. Changes in the price of related goods and servicesWhen the price of complementary goods decreases, the demand curve will shift outwards. Alternatively, if the price of complementary goods increases, the curve will shift inwards. The opposite is true for substitute goods. For example, if the price for peanut butter goes down significantly, the demand for its complementary good – jelly – increases. Example of a Shift in the Demand CurveRecall the demand schedule for high-quality organic bread: Assume that the price of a complementary good – peanut butter – decreases. How would this affect the demand curve for high-quality organic bread? Since peanut butter is a complementary good to high-quality organic bread, a decrease in the price of peanut butter would increase the quantity demanded of high-quality organic bread. When consumers buy peanut butter, organic bread is also bought (hence, complementary). If the price of peanut butter decreases, then more consumers purchase peanut butter. Therefore, consumers would also purchase more high-quality organic bread as it is a complement to peanut butter. We can see from the chart above that a decrease in the price of a complementary good would increase the quantity demanded of high-quality organic bread. Movements Along the Demand CurveChanges in price cause movements along the demand curve. Following the original demand schedule for high-quality organic bread, assume the price is set at P = $6. At this price, the quantity demanded would be 2000. If the price were to change from P = $6 to P = $4, it would cause a movement along the demand curve, as the new quantity demanded would be 3000. Other ResourcesCFI is a leading provider of financial certifications and analyst training. To continue learning and advancing your career, these additional CFI resources will be helpful:
What will cause a demand curve to shift to the right?Demand Curve Shifts Right
The curve shifts to the right if the determinant causes demand to increase. This means more of the good or service are demanded even though there's no change in price. When the economy is booming, buyers' incomes will rise.
Which of the following will cause the supply curve for product X to shift to the left?An increase in the cost of raw materials makes production costly and thus, the supply curve shifts to the left. On the other hand, a decrease in the cost of raw materials will shift the supply curve to the right.
What are the causes of shifting demand curve?Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices.
What causes the demand curve to shift to the right to the left quizlet?Any change that increases the demand shifts the demand curve to the right and is called an increase in demand. Any change that reduces the quantity demanded at every price shifts the demand curve to the left and is called a decrease in demand.
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Assume the demand curve for product x shifts to the right. this might be caused by
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