Demand curve shows the
quantity demanded at each price. It is based on law of demand which state
there is inverse relationship between price of a good and its demand,
provided we hold everything else that affect demand like individual preference constant.
We all have experienced
the law of demand in our life. Most common of them is changing oil prices. One
thing or other happens in Middle East like Islamic State capturing of Iraq, rebellion
in Qatar against oppressive government. All this affect oil supply worldwide as
Middle East has major reserve of world oil. Since the demand of oil is
inelastic price rises as supply falls
When we combine the demand
curve of all individuals for a particular good say Maggie noodles we get an
aggregate demand curve which we call market demand curve.
Why is demand curve
downward sloping?
Let's understand this
with an example. Narendra Modi like Maggie noodles very much. ( a word of
warning noodles are harmful for health!). Eat less of them). Below we draw
Modi’s demand schedule which shows quantity demand of the noodles as its
price changes.
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| Demand schedule Taking price on y axis and quantity of noodles demanded on x axis and mapping the above data on graph we obtain the demand curve. |
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| Demand curve : Look demand curve is downward sloping |
Demand
curve is downward sloping because as seen in graph lower price increases the
demand for good and vice versa.
Demand
curve need not to be always downward sloping. It can vertical or horizontal
depending upon the elasticity of good . For example demand curve for drug
addicts is inelastic even if the price of drugs increases the quantity demanded
of drugs will remain same.
