What does Demand Curve mean
The demand curve graphically represents the mathematical relationship between the greater quantity of a good or service that a consumer is willing to pay for each amount of that good.
This allows to know the relationship between the quantity demanded of a product and the price of the same. In other words; The quantities that one or several consumers would like to buy from a product based on a cost and a precise time.
Said in a few words; The demand curve is the negative slope line that relates the price to the quantity demanded
This is a useful graph, since it shows the possible or probable effect of certain economic situations on the consumption of goods.
Although the demand curve is often referred to as an existing tangible object or essence, it is actually an abstract object and its existence derives from precise mathematical assumptions, which are sometimes only fulfilled in approximations.
At the same time, the demand curve and its properties depend on consumers. Since buyers determine the demand.
These consumers should present perfect rationalities, that the goods are completely divisible, and other assumptions that have been criticized.
However, the demand curve is very useful when understanding the qualitative behavior of the markets, and in several cases, it is an empirically adequate graph and description.
The demand curve and the supply curve are both tools used for the theoretical analysis applied in the area of neoclassical economics, also used to predict prices.
The point at which these two curves intersect is called with the name “Equilibrium” between supply and demand.
Curves in economy
Those who study the field of economics (economists) use the curves to demonstrate why and how the growth of production and quality after making certain changes to a process.
These alterations can be of the type of obtaining new tools or machineries in the production of the good, new methodologies, change of personnel in the company or business, among others.
The curves contribute much to the argumentation and graphic demonstration in Economy, could even be the key element.
Well, the curves solve problems of high complexity as these are brought into two-dimensional graphs.
They represent the relationship of a dependent and an independent variable, given firm values of the other independent variables.
Buyer demand will depend on numerous variables; Price, rent, adjoining prices, personal preferences, and so on. A demand curve will represent the quantity demanded as a function of the cost of the good, for values previously given of the other variables.
To understand better the concept of demand curve, it is necessary to know what the demand is. The demand is the sum or quantity of purchases of goods, products or services that a social group meets at a given time.
There are two ways in which demand can occur:
- Individual demand, i.e. a single buyer / consumer.
- Total demand, i.e. all consumers in a market.
The quantity of the product or service that is demanded can vary in the market depending on different factors, but mainly of the price, the availability, the quality and the necessity of the consumer who wishes to acquire it.
Previously, the price is variable and primordial in the determining factors in the demand of a product.
By being variable it means that it is modifiable over time, usually this happens when the bidder sees a change necessary.
The demand curve shows the valuation that the buyers make of each unit of aggregate consumption of said good.
In this way, the area under the curve calculates the total value for consumers of having an additional amount of a good.
It is understood that this estimate involves all the benefits that are perceived particularly by consumers; Those who are considered to have holistic information on the alternatives, the costs they face, and are rational in making decisions for their own well-being.
Determinant factors of the demand
Logically, the more expensive the product, the lower the demand. On the contrary, the cheaper it is, the greater the number of buyers.
Or the rent of the same. If the consumer loses the job that would negatively affect the individual demand of the person, since it would decrease since it has less to spend.
If income decreases demand will also do so, this type of good is known as “normal goods.”
However, when demand increases as income decreases, it is known as “lower good.”
When the decline of one price reduces the demand for another product, these are called “substitute goods”.
For example: Oil and natural gas, butter and margarine, sweatshirts and jerseys, among others
On the other hand, if the reduction of the price of one good ascends the demand of another, these are called “complementary goods”.
For example: Telephone and telephone linings, cars and fuel, computers and software, among others.
Preferences, trends and fashion are the most obvious determinants of the behavior of consumers with autonomy of prices and / or income
The expectation of a person influences the present demand for a good. For example, the announcement of rebates would make people wait for the offer before buying the product at the current price.
Change in quantity demanded vs. change in demand:
Change in quantity demanded:
- Movement along the demand curve
- Resulting from a change in the price of the product
Change in demand:
- A shift of the demand curve, to the right or to the left
- Resulting from a change in any variable other than price
The demand curve shows how the quantity of a good depends on its price
The price that balances supply and demand on a graph is the cost at which supply and demand curves are intercepted.
The supply curve, on the other hand, is the price at which producers are able to launch the product or service to the market.
In case an initial price has given the quantity that are willing to acquire the consumers is greater than the quantity offered by the sellers, it is because the price is very low and will eventually produce scarcity
When the price has risen, there will be consumers who will leave the market and there will be new producers willing to produce the good at a new price.
This adjustment course will persist until the amount that buyers are willing to invest at the market price perfectly matches the amount that producers are willing to throw at that price.
This is the commonly called “equilibrium price” in the market.
It may also occur that the original price is too high, and as a result there would be unsold storage (since the quantity offered is greater than the demanded).
As a solution, the price should go down. Some producers will withdraw and new consumers attracted by the fall in prices will arise.
Once again, this will happen until the equilibrium between supply and demand curves is reached.
When equilibrium is achieved, it will be sought to remain at that point, because at that price both sides, buyers and sellers, will follow the rules of conduct and empties the products in the market.
This is the assumed idea when it is ensured that the market is a good system of resource allocation, as it usually tends to price and equilibrium quantities for each product or else.
The balance between supply and demand will be unique if the demand curve satisfies certain characteristics:
- Full Preferences
- Consumer Rationality
Shifts in curves vs. movements along curves
- A slip of the supply curve is known as a change in supply
- A movement along the supply curve is known as a change in quantity supplied
- A shift in the demand curve is known as a change in demand.
- A slope in the demand curve is understood as a change in quantity demandedTogether, the position or shape of the curve, whether higher, lower, right or left shifted will vary depending on the determinants of demand.
By increasing the incomes of those who buy, demand will increase, because they will have more to spend, which would be causing the shift to the right of the demand curve, because at the same price the amount of demand will rise.
Conversely, if the country’s wage or income is reduced, demand will also decrease, so the demand curve will shift to the left.
However, if demand increases by a positive change, whether in tastes, fashion, trend or by rising prices, the curve will shift to the right.
Note that the devaluation or cheapening of the good does not cause a shift in the curve, because the curve only indicates precisely the quantities demanded at any cost.
If the determinants are firm and constant, then the demand curve will not shift, and the effect of the changes in the amounts on demand quantities can be accurately measured.
Those will be represented by the movements along the curve.
Ladefinicion.de curva de la demanda (Spanish Version)