Introducing Supply and Demand

Read the sections on Demand, Supply, Market Equilibrium, and Government Intervention and Disequilibrium for a mathematical exposition of the demand and supply model, clicking through to the next when you have finished each page. The chapter also covers price ceilings and price floor analysis as well as quantity regulations.

1. Demand - The Law of Demand

In general, the law of demand states that the quantity demanded and the price of a good or service is inversely related, other things remaining constant.

LEARNING OBJECTIVES

Explain the concept of demand and discuss the factors that affect it

Key Points
• The demand curve is downward sloping, indicating the negative relationship between the price of a product and the quantity demanded.
• For normal goods, a change in price will be reflected as a move along the demand curve while a non-price change will result in a shift of the demand curve.
• Two exceptions to the law of demand are Giffen goods and Veblen goods.

Key Terms
• Giffen good: A good which people consume more of as only the price rises; Having a positive price elasticity of demand.
• Veblen good: A good for which people's preference for buying them increases as a direct function of their price, as greater price confers greater status.
• Normal good: A good for which demand increases when income increases and falls when income decreases but price remains constant.

In economics, the law of demand states that the quantity demanded and the price of a good or service is inversely related, other things remaining constant. Therefore, the demand curve will generally be downward sloping, indicating the negative relationship between the price of a good or service and the quantity demanded.

Source: Lumen Learning, https://courses.lumenlearning.com/boundless-economics/chapter/demand/