Unit 1 - The Market System: Chapter 3: The Demand Curve

There is a strong link between the price charged for a good and the amount people are willing to buy.

Demand is the amount of a good that will be bought at given prices over a period of time.
Effective demand is crucial in economics:
- It shows how much people can afford to buy and would actually buy at a given price.
- It is not simply how much people want to buy if money were no object.

Demand Curve: A line on a graph showing how much of a good will be bought at different prices.
Demand Schedule: A table of the quantity demanded of a good at different price levels, used to calculate expected quantity demanded.
Effective Demand: The amount of a good people are willing and able to buy at given prices over a given period.
Inverse Relationship: When price goes up, quantity demanded falls, and vice versa.

Demand can be expressed graphically, showing the relationship between price and demand.
Table 3.2 presents a demand schedule for electronic circuit boards.
- Price (US$) vs. Quantity of Boards Per Annum (Millions):
  - 0.25: 140
  - 0.50: 70
  - 1.00: 40
  - 2.00: 20
This data can be plotted on a graph (Figure 3.1).
- Price is on the vertical axis, quantity demanded on the horizontal axis.
- Connecting the points forms the demand curve.
- The demand curve shows the quantity demanded at any given price.
- Example: At US$1, the quantity demanded is 40 million units.
The demand curve typically slopes down from left to right, illustrating the inverse relationship between price and quantity demanded.
- When prices go up, demand falls.
- When prices go down, demand rises.
- Example: When the price of circuit boards falls from US$1 to US$0.50, demand rises from 40 million to 70 million units.

A price change causes a movement along the demand curve.
In Figure 3.1, a price decrease from US$1 to US$0.50 results in a movement from point A to point B on the curve.
This movement shows a quantity demanded increase of 30 million units (from 40 million to 70 million).
Other factors influencing demand (e.g., income) have a different effect, causing the entire curve to shift.

Shift in the Demand Curve: Movement to the left or right of the entire demand curve due to a change in any factor affecting demand except price.

In economics, demand curves are often shown as straight lines, which simplifies drawing and understanding diagrams.
Figure 3.3 shows a straight-line demand curve for car park spaces.
It still illustrates the inverse relationship clearly.
Example: Price increase from 60 pence to 80 pence leads to a decrease from 300 to 150 cars parked.

If the price of a good changes, there is a movement along the demand curve.
A change in any other factor, such as income, will be shown by a shift in the demand curve.
The demand curve, $D1$ , shown in Figure 3.4, is for package holidays to the Maldives. At the price of $p1$ , consumers are currently buying $q_1$ holidays.
- If there is an increase in incomes, the quantity demanded will rise at every given price. As a result, the demand curve will shift to the right, to $D2$ shown in the diagram. At the price $p1$ , the number of holidays bought would rise from $q1$ to $q2$ .
- If there is a decrease in incomes, the quantity demanded will fall at every given price. This will cause the demand curve to shift to the left, to $D3$ shown in the diagram. At the price $p1$ , the number of holidays bought would fall from $q1$ to $q3$ .