The Demand Curve

Effective Demand

• Definition: The quantity of a good that consumers are both willing and able to purchase at various prices over a given period.
  • Emphasises actual purchasing power, not mere desire.
  • Distinguishes between hypothetical/"wished-for" demand and feasible, market-backed demand.
• Significance:
  • Forms the basis for real sales forecasts, inventory planning, and pricing decisions.
  • Underpins all graphical and numerical representations that follow (demand schedules & curves).

Case Study – Carpet Stall (Fez, Morocco)

• Seller: Aziz Feddal, Henna Souk, Fez.
• Weekly demand schedule (extracted from Table 3.1):
  • $\text{Price (MAD)}: 70,\;80,\;100,\;120,\;140,\;160,\;180$
  • $\text{Quantity (carpets/wk)}: 60,\;50,\;40,\;30,\;20,\;10,\;0$
• Illustrative Q&A from the text:
  • At $\text{price}=\text{MAD }100$, customers buy 50 carpets.
  • As price increases $\uparrow P \;\Rightarrow\; \downarrow Q$ (demand falls).
  • When price is lowered $\downarrow P \;\Rightarrow\; \uparrow Q$ (demand rises).
• Pedagogical take-away: Even in a small market stall, the standard inverse price-quantity relationship holds.

Demand Schedule & Demand Curve

• Demand schedule: A table pairing each possible price with the corresponding quantity demanded in a given time-frame.
• Graphical expression: Plot price on the vertical axis, quantity on the horizontal axis; join the points smoothly to obtain the demand curve.
• Core mathematical property: \frac{dQ}{dP}<0 (negative slope).

Case Study – Electronic Circuit Boards (South Korea)

• Product: Circuit boards for global television production.
• Annual demand schedule (Table 3.2):
  • P=2.00\;\text{US$}\;\Rightarrow\;Q=20\;\text{million}
  • P=1.00\;\text{US$}\;\Rightarrow\;Q=40\;\text{million}
  • P=0.50\;\text{US$}\;\Rightarrow\;Q=70\;\text{million}
  • P=0.25\;\text{US$}\;\Rightarrow\;Q=140\;\text{million}
• Figure 3.1:
  • Down-sloping curve labelled “Demand”.
  • Example highlight: P\,:\,1\ \text{US$}\;\rightarrow\;Q=40\ \text{m}.
  • Price cut 1\to0.50\ \text{US$} shifts quantity $40\to70$ million ((+30\;\text{m})).
• Demonstrates the pronounced sensitivity of industrial components to price changes.

Movement Along the Demand Curve

• Trigger: Price change only (ceteris paribus).
• Represented by sliding along the existing curve, e.g. point $A\to B$ in Figure 3.1.
• Numeric example (circuit boards):
  • \Delta P:1\to0.5\ \text{US$} ; $\Delta Q:40\to70\ \text{million}$.
• Key insight: Such movements do not alter the curve’s position – they reveal different points on the same relationship.

Activity – Demand for Cricket Tickets (India)

• Stadium capacity: $30{,}000$.
• Figure 3.2 demand curve; selected readings used in textbook questions:
  • If ticket price $=\text{Rs }400$ ⇒ attendance ≈ 7.5 thousand.
  • To sell out (30 k seats) price must drop to ≈ Rs 200 (implicit answer noted as "5" in the text likely means 200 rupees when scaling on the graph).
• Illustrates practical use of curves for revenue and capacity planning in event management.

Straight-Line (Linear) Demand Curves

• Economists often simplify to a straight line for clarity without losing the inverse relation.
• Figure 3.3 – City-centre car-park spaces:
  • Linear demand from $P=100\;\text{p}\ (Q=0)$ to $Q=600\;\text{cars}$ at $P=0$.
  • Example: Raising the hourly price $60\to80\ \text{p}$ cuts occupancy $300\to150$ cars.
• Algebraic form (generic): $Q=a-bP$ where b>0 denotes slope magnitude.

Shifts in the Demand Curve

• Occur when non-price determinants change (income, tastes, population, expectations, prices of related goods, etc.).
• Visualization (Figure 3.4 – Maldives package holidays):
  • Original curve $D<em>1$: at price $p</em>1$ quantity $q_1$.
  • Positive income shock ⇒ curve moves rightward $D<em>1\to D</em>2$ ; quantity rises $q<em>1\to q</em>2$ at every price.
  • Negative income shock ⇒ curve moves leftward $D<em>1\to D</em>3$ ; quantity falls $q<em>1\to q</em>3$.
• Core rule of thumb:
  • Shift right ⇒ higher demand at all prices (outward).
  • Shift left ⇒ lower demand at all prices (inward).
• Never confuse a shift (curve relocation) with a movement (change along the same curve).

Practical & Conceptual Takeaways

• The demand curve’s downward slope is one of the foundational “laws” of micro-economics: law of demand.
• Effective demand anchors analysis in real purchasing power – indispensable for policy, marketing, and operations.
• Case studies (carpets, circuit boards, cricket tickets, car-parks, holidays) highlight universality across sectors:
  • Luxury items (holidays) still obey the inverse law but are highly income-sensitive (large shifts).
  • Industrial inputs (circuit boards) show large volume swings even with marginal price changes.
  • Perishable capacity (stadium seats, car-park spaces) invites pricing strategies to balance fill-rate vs. revenue.
• Graph mastery:
  • Vertical axis = $P$, horizontal = $Q$.
  • Movements vs. shifts must be mechanically and conceptually distinguished.
• Ethical & strategic implications:
  • Revenue maximisation vs. consumer access (e.g., sports ticket pricing could exclude lower-income fans).
  • Public policy often scrutinises sharp price hikes due to welfare losses predicted by the inverse relationship.
• Quantitative hooks for further study:
  • Elasticity measurements use precisely these schedules/curves to compute $E_d = \frac{\%\Delta Q}{\%\Delta P}$.
  • Linear form enables quick slope and elasticity calculations at any point.