Section 2

The Demand Curve

The law of demand says that, all else equal, people buy less of something when its price rises and more when its price falls. The relationship runs in one direction: higher price, lower quantity demanded.

Think about used textbooks at the start of a semester. When the campus bookstore charges $80 for a title, students buy it. When the same book jumps to$ 140, more students skip it, share a copy, or find a PDF. The price went up; the quantity demanded went down.

Or consider a streaming service that raises its monthly price by 30%. Some subscribers cancel immediately; others downgrade to a cheaper plan. Again: higher price, fewer buyers choosing to pay.

A demand schedule is just this relationship written out as a table — one row per price, showing how much buyers would demand at each level. Here is the schedule for a market where $Q_d = 100 - 2P$ .

Price ($)	Quantity demanded
0	100
10	80
20	60
30	40
40	20
50	0

Each row applies the formula

Q_d = 100 - 2P

at a different price. At

P = 50

nobody buys; at

P = 0

quantity demanded reaches its maximum of 100.

Plot those pairs with quantity on the horizontal axis and price on the vertical axis and you get the demand curve. A heads-up: economists almost always draw price on the vertical axis — the opposite of what the equation $Q_d = a - bP$ might suggest, where $P$ is the input and $Q_d$ is the output. This trips up a lot of students on their first graph.

The demand curve

The demand curve slopes downward: a higher price means a lower quantity demanded. Economists put price on the vertical axis and quantity on the horizontal — the reverse of what you might expect from

Q_d = a - bP

The linear demand equation captures this relationship in two parameters. $a$ is the market size — the quantity demanded when the price is zero, which tells you how much buyers want at the most favorable price. $b$ is the price sensitivity — how many units of demand you lose for every one-dollar increase in price.

Q_d = a - bP

With $a = 100$ and $b = 2$ , a $1 rise in price costs 2 units of sales. If price climbs from $20 to $21, quantity demanded falls from 60 to 58. The steeper the demand curve, the larger $b$ is, and the more price-sensitive buyers are.

Five categories of factors shift the demand curve. When any one of them changes, buyers want a different quantity at every price — the whole schedule moves.

Income: For a normal good — one where demand rises as income rises (most goods: restaurant meals, new phones, gym memberships) — higher income shifts the curve right. For an inferior good — one where demand falls as income rises (instant noodles, bus rides when you can now afford a car) — higher income shifts the curve left.
Prices of related goods: Substitutes are goods you buy instead of each other — butter and margarine, Uber and Lyft, Pepsi and Coke. A price rise in a substitute shifts demand for your good to the right (buyers switch toward it). Complements are goods bought together — cars and gasoline, printers and ink cartridges. A price rise in a complement shifts demand for your good to the left (the bundle becomes more expensive overall).
Tastes and preferences: If buyers decide they want more of a good — because of a trend, a health recommendation, or a viral moment — demand shifts right. If tastes turn against the good, demand shifts left.
Expectations: If buyers expect the price to rise next month, many will buy now, shifting current demand right. If they expect a sale or a price drop, they wait, shifting current demand left.
Number of buyers: More buyers in the market means more demand at every price — a rightward shift. This is why opening a new trade route or relaxing an import restriction raises demand even if individual preferences do not change.

The chart below shows what a rightward shift looks like. Suppose incomes rise and this is a normal good. The new demand curve sits entirely to the right of the old one: at $P = \$ 30$, buyers now want 60 units instead of 40.

A rightward shift: demand increases

The whole curve moves right. At every price, buyers now want more — not because the good got cheaper, but because something else changed (here, income rose).

In Section 5 you will drag the parameter $a$ yourself and watch the equilibrium price and quantity move in real time.