# Demand

Copyright © 1985, 1988, 1991, 1996, 1998 Samuel L. Baker.

Economics tutorials by Samuel L. Baker are licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

This tutorial introduces the concept of demand. We'll include some numerical examples to give you practice in interpreting demand charts and graphs.

## ECONOMICS DEFINITION OF DEMAND

"Demand" is the relationship between the price that is charged and the amount that will be bought at that price.

From this definition, demand is not a single quantity. Rather, it is a table or graph showing some prices that might be charged and the corresponding amounts that buyers will want to buy.

"Quantity demanded" is the amount that will be bought at a particular given price.

Here's an example:

Suppose that the table below shows the demand for your small company's disposable surgical gowns. (Please forgive me if the prices are unrealistic.) The key idea, again, is that the demand is the entire table, not any one number in the table.

## Demand for Disposable Hospital Gowns

The table below shows some possible prices for gowns. Under each price is the corresponding number of gowns that buyers would buy per day at that price.

 Price per gown: \$1 \$2 \$3 \$4 \$5 \$6 Quantity of Gowns Demanded per Day: 60 30 20 15 12 10

Based on this table, how many gowns will be bought per day if you charge \$4 each?

That question asked for the quantity demanded at that particular price of \$4.
Suppose that you raise your price to \$5 or \$6. Does the quantity demanded go up or down?
Up Down

Please notice that the table (repeated below) says "... Gowns Demanded per Day". Demand quantities always have a time frame. If you charge \$4 you can sell:
15 gowns per day, or
75 gowns per 5-day week, or
3750 gowns per 50-week year.
To put a Quantity number in a demand table like this, you must have a time frame in mind. Demand quantities are "flows," in economics jargon.

 Price per gown: \$1 \$2 \$3 \$4 \$5 \$6 Quantity of Gowns Demanded per Day: 60 30 20 15 12 10

You can also use the demand table to go from a quantity to sell to a price to charge. For example,
if you want to sell 30 gowns per day, what price should you charge?

Do not type a \$ sign. Just the number.

## DEMAND GRAPHS

In textbooks, demand relations are often presented as graphs rather than tables. Mathematically the two are equivalent. Some people can't stand graphs, but many others find that graphs are easier to take in at a glance than tables are. So, for those of you who like graphs, here is that demand relation graphed:

```                          DEMAND FOR DISPOSABLE GOWNS

Price
\$6|         *

\$5|           *

\$4|              *

\$3|                   *

\$2|                             *

\$1|                                                           *
....:....:....:....:....:....:....:....:....:....:....:....:

5   10   15   20   25   30   35   40   45   50   55   60  Quantity```

The points form a line that slopes downward from left to right. Most demand graphs do this. The downward slope means that at higher prices less is sold, while at lower prices more is sold.

Each * on the graph corresponds to a price-quantity pair in the table. This is shown in the graph below by labelling with A through F the points on the graph and the corresponding columns in the table.

```                          DEMAND FOR DISPOSABLE GOWNS

Price

\$6|         F
\$5|           E
\$4|              D
\$3|                   C
\$2|                             B
\$1|                                                           A
....:....:....:....:....:....:....:....:....:....:....:....:
5   10   15   20   25   30   35   40   45   50   55   60  Quantity

A       B       C       D       E       F
Price           \$1      \$2      \$3      \$4      \$5      \$6
Quantity        60      30      20      15      12      10```

Which point on this graph tells you the quantity demanded when the price you charge is \$2?
A B C D E F

When you change your price, you move along the demand graph from one point to another.

Suppose your price was \$2 and you change it to \$4.
You move along the demand graph to what point?
A B C D E F

## DEMAND SHIFTS

Demand can shift. A shift in demand means that the relationship between price and quantity demanded changes. In the graph, all the quantities shift up (which is to the right) or down (which is to the left). In the table, shifting up means that all the quantity demanded numbers get bigger, while the prices stay the same. Shifting down means all the quantities demanded get smaller at the same prices. For example, suppose some customers hear a rumor that your gowns are not 100% waterproof. Which way will your demand probably shift?
Up Down

Let's animate this.

Graph of demand before the rumor.
Graph of demand with the rumor.

Click the radio buttons above to show your demand before and after the bad rumor spreads.

The bad rumor makes each point move to the left, which is "down." At every price, there are fewer buyers than there used to be. This is what economists mean by a "fall in demand." The whole curve shifts to the left.

At the old higher demand, you could sell 30 gowns a day at \$2.
At the new lower demand -- click the "Graph of demand with the rumor" button above to see this -- how many can you sell at a price of \$2?

When your demand shifts down, the amount you sell doesn't necessarily go down. It depends on what you do with your price. For example, you can keep on selling 30 gowns per day if you cut your price to what?

Do not type a \$ sign. Just the number.

## Moving Along the Demand Graph versus Shifts in the Demand Graph

In general parlance, statements like "Demand went up" or "Demand will go down" are ambiguous. They can mean a movement along the demand graph, as price changes, or they can mean a shift of the whole demand graph.

Here are some situations where someone might say the demand changed. Which ones are changes in the quantity demanded, moving along the demand curve in response to price changes? Which ones are changes in the demand curve itself?

As HIV-AIDS spread, sales of rubber gloves skyrocketed.
That was movement ALONG the demand curve for gloves.
That was movement OF the demand curve for gloves.

A wellness clinic hires a handsome receptionist. More patients come.
That is movement ALONG the demand curve for clinic visits.
That is movement OF the demand curve for clinic visits.

You cut your price on routine physical examinations. More patients come.
That is movement ALONG the demand curve for exams.
That is movement OF the demand curve for exams.

You double what you charge for an organ transplant. It makes little difference in patients per year.
That is movement ALONG the demand curve for transplants.
That is movement OF the demand curve for transplants.

## SUMMARY

Demand is ...
... how much gets bought and sold.
... a curve, or a table, showing prices and the corresponding quantities demanded.

That's all for now. Thanks for participating!

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