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M02.L01 — The Demand Curve: Law of Demand and Individual Demand

Module: Module 02 — Demand and Willingness to Pay
Lesson: L01 of 05
Duration: ~30 minutes
Level: Introductory
Provenance: OpenStax Principles of Microeconomics 3e | Khan Academy Microeconomics

Learning Objective

Explain the law of demand and illustrate it with a demand curve.

Understanding the Demand Curve

The demand curve is a graphical representation of the relationship between the price of a good and the quantity demanded, holding all else constant. In Australia, consider the demand for avocados: as prices rise during supply shortages (e.g., due to weather disruptions), fewer consumers purchase them, illustrating a downward-sloping demand curve.

Key concepts: - Law of Demand: Higher prices lead to lower quantities demanded (and vice versa). - Demand Schedule: Table of prices and corresponding quantities demanded. - Real Income Effect: As prices rise, purchasing power decreases, reducing demand. - Substitution Effect: Consumers switch to alternatives (e.g., switching from avocados to bananas). - Diminishing Marginal Utility: Each additional unit consumed provides less satisfaction.

Worked Example

Avocado Demand in Sydney

  1. At $3/avocado, demand is 1,000 units/week.
  2. At $5/avocado, demand drops to 600 units/week.
  3. Plotting these points reveals a downward-sloping curve.

Common Misconception

"A demand curve shift is the same as movement along the curve."

A shift occurs when a non-price factor (e.g., income) changes demand at all prices, while movement along the curve reflects price changes.

Key Takeaways

  • The demand curve slopes downward due to the law of demand.
  • Real income and substitution effects explain consumer responses to price changes.
  • Diminishing marginal utility underlies the curve's shape.
  • Shifts (vs. movements) are critical for accurate analysis.

Practice

  1. If the price of beef rises in Melbourne, how might demand for chicken change?
  2. Draw a demand curve for Australian café coffee using hypothetical data.
  3. Explain how a drought could shift the demand curve for almonds.

Further Resources

Provenance: OpenStax Principles of Microeconomics 3e | Khan Academy Microeconomics