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.

Demand Schedules and Demand Curves

A demand curve depicts the price and quantity combinations listed in a demand schedule.


Describe the relationship between demand curves and demand schedules


Key Points
  • Demand curves are a graphical representation of a demand schedule, which is the table view of an economic agents' price to quantity relationship.
  • Demand curves embody preferences, substitution potential and income, as well as other characteristics that influence an economic agent's ability to assess willingness to pay at a specific point in time for goods and services.
  • Demand curves may be linear or curved.
  • Aggregate demand is the sum of the quantity demanded for a specific price over a group of economic agents.

Key Terms
  • equilibrium: The condition of a system in which competing influences are balanced, resulting in no net change.

The demand curve is a graphical representation depicting the relationship between a commodity's different price levels and quantities which consumers are willing to buy. The curve can be derived from a demand schedule, which is essentially a table view of the price and quantity pairings that comprise the demand curve.

Demand Schedule and Curve

Demand Schedule and Curve: The demand curve is the graphical representation of the economic entity's willingness to pay for a good or service. It is derived from a demand schedule, which is the table view of the price and quantity pairs that comprise the demand curve.

Given that in most cases, as the price of a good increases, agents will likely decrease consumption and substitute away to another good or service, the demand curve embodies a negative price to quantity relationship. The curve typically slopes downward from left to right; though there are some goods and services that exhibit an upward sloping demand, these goods and services are characterized as abnormal.

The demand curve of an individual agent can be combined with that of other economic agents to depict a market or aggregate demand curve. Using a demand schedule, the quantity demanded per each individual can be summed by price, resulting in an aggregate demand schedule that provides the total demanded specific to a given price level. The plotting of the aggregated quantity to price pairings is what is referred to as an aggregate demand curve. In this manner, the demand curve for all consumers together follows from the demand curve of every individual consumer.

The demand curve in combination with the supply curve provides the market clearing or equilibrium price and quantity relationship. This is found at the intersection or point at which the supply and demand curves cross each other.