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Demand Curves: What Are

They, Types, and Example
Table of Contents
What Is the Demand By WILL KENTON Updated September 27, 2023
Curve? Reviewed by MICHAEL J BOYLE

Understanding the Curve Fact checked by KIRSTEN ROHRS SCHMITT

Types of Demand Curve

Demand Elasticity

Factors Shifting the

Curve

Exceptions

FAQs

The Bottom Line

Investopedia / Paige McLaughlin

What Is the Demand Curve?

The demand curve is a graphical representation of the relationship between
the price of a good or service and the quantity demanded for a given period of
time. In a typical representation, the price appears on the left vertical axis
while the quantity demanded is on the horizontal axis.

A demand curve doesn't look the same for every product or service. When the
price rises, demand generally falls for almost any good, but the drop is much
greater for some goods than for others. This is a reflection of the price
elasticity of demand, a measurement of the change in consumption of a
product in relation to a change in its price. The elasticity of demand for
products varies between and within product categories, depending on the
product’s substitutability.

KEY TAKEAWAYS
A demand curve is a graph that shows the relationship between the
price of a good or service and the quantity demanded within a
specified time frame.
Demand curves can be used to understand the price-quantity
relationship for consumers in a particular market, such as corn or
soybeans.
The demand curve generally slopes down from left to right, due to
the law of demand while the quantity demanded drops as the price
rises for the majority of goods.
Changes in factors besides price and quantity can shift a demand
curve to the right or left.
There are some exceptions to the relationship between price and
demand, including Giffen goods and Veblen goods.

Understanding the Demand Curve

As noted above, the demand curve is a commonly used graph that represents
the relationship between prices and the total quantity of goods and services
demanded over a certain period of time. Prices normally appear on the y-axis
while demand is depicted on the x-axis.

This curve generally moves downward from the left to the right. This
movement expresses the law of demand, which states that as the price of a
given commodity increases, the quantity demanded decreases as long as all
else is equal.

Note that this formulation implies that price is the independent variable, and
quantity is the dependent variable. In most disciplines, the independent
variable appears on the horizontal or x-axis, but economics is an exception to
this rule.

For example, if the price of corn rises, consumers will have an incentive to buy
less corn and substitute other foods for it, so the total quantity of corn that
consumers demand will fall.
Image by Julie Bang © Investopedia 2019

Types of Demand Curve

There are two types of demand curve: an individual demand curve and a
market demand curve.

Individual Demand Curve

An individual demand curve is one that examines the price-quantity
relationship for an individual consumer, or how much of a product an
individual will buy given a particular price.

Let's say the price of a slice of pizza is $1.50 and Joel is accustomed to buying
four slices for lunch every workday (4 x $1.50 x 5 = $30). If the price drops to $1
a slice, four slices will cost Joel $20 (4 x $1 x 5), and Joel might demand six
slices instead of four.

But if the price drops to 75 cents a slice, he might demand eight slices a day.
With the price information and the number of slices Joel will demand at that
price, it would be possible to plot an individual demand curve.

Market Demand Curve

The demand curve plots out the demand for an individual consumer, hence
the name individual demand curve. But they don't take entire markets into
account. That's where the market demand curve comes in.

A market demand curve is the summation of the individual demand curves in

a given market. It shows the quantity of a good demanded by all individuals at
varying price points. Keep in mind that this graph doesn't outline what
consumers want. Rather, it depicts the goods and services they'll buy if they
purchasing power to do so.

Determining the market demand curve is as easy as adding up all of the

individual demand curves. This is then plotted along the horizontal or x-axis
of the graph. Unlike individual demand curves, which are generally steeper,
market demand curves tend to be flatter. That's because demand in the
market is more proportionate as prices change compared to changes in
individual demand.

Important: Businesses can use the market demand curve to help

determine whether their goods and services are properly priced
according to consumer demand.

Demand Elasticity
The degree to which rising price translates into falling demand is called
demand elasticity or price elasticity of demand. If a 50% rise in corn prices
causes the quantity of corn demanded to fall by 50%, the demand elasticity of
corn is 1. If a 50% rise in corn prices only decreases the quantity demanded by
10%, the demand elasticity is 0.2. Elasticity measures how demand shifts
when economic factors change. When demand remains constant regardless of
price changes, it is called inelasticity.

Elastic Demand Curve

The demand curve is shallower (closer to the horizontal axis) for products
with more elastic demand. Goods with more elastic demand are those for
which a change in price leads to a significant shift in demand. Elastic goods
include luxury products and consumer discretionary items, such as a brand of
a candy bar or cereal. Food items are easily substituted, and brand-name
products are easily replaced by items that are lower in price.

Inelastic Demand Curve

The demand curve for items that are less elastic or inelastic is steeper (closer
to the vertical axis). Inelastic goods are generally necessities, for which there
are few, if any, substitutes. Common examples are utilities, prescription drugs,
and tobacco products. Demand often remains constant for these items
despite price changes.

Factors That Shift the Demand Curve

If a factor besides price or quantity changes, a new demand curve needs to be
drawn. For example, say that the population of an area explodes, increasing
the number of mouths to feed. In this scenario, more corn will be demanded
even if the price remains the same, meaning that the curve itself shifts to the
right (D2) in the graph below. In other words, demand will increase.

Other factors can shift the demand curve as well, such as a change in
consumers' preferences. For instance:

If cultural shifts cause the market to shun corn in favor of quinoa, the
demand curve will shift to the left (D3).
If consumers' income drops, decreasing their ability to buy corn, demand
will shift left (D3).
If the price of a substitute—from the consumer's perspective—increases,
consumers will buy corn instead, and demand will shift right (D2).
 If the price of a complement, such as charcoal to grill corn, increases,
demand will shift left (D3).
If the future price of corn is higher than the current price, the demand will
temporarily shift to the right (D2), since consumers have the incentive to
buy now before the price rises.

Image by Julie Bang © Investopedia 2019

Exceptions to the Demand Curve

There are some exceptions to the rules that apply to the relationship that
exists between prices of goods and demand. Two of these are Giffen goods
and Veblen goods.

Giffen Goods
A Giffen good is a non-luxury product for which there is no viable substitute—
for example, a staple food, like bread or rice. In short, the demand increases
for a Giffen good when the price increases and it falls when the price drops.

The demand for these goods is on an upward slope, which goes against the
laws of demand. Therefore, the typical response (rising prices triggering a
substitution effect) won’t exist for Giffen goods, and the price rise will
continue to push demand.

Veblen Goods
Veblen goods are those for which demand rises even as the price rises
because of the exclusive nature and appeal of these products as status
symbols. Like the demand curve for a Giffen good, a Veblen good has an
upward-sloping demand curve (in contrast to the usual downward-sloping
curve).

Veblen goods are generally luxury items, such as cars, yachts, fine wines, and
designer jewelry, that are high quality and out of reach for the majority of
consumers. It is named after American economist Thorstein Veblen, who is
best known for introducing the term “conspicuous consumption.”

What Is the Law of Demand?

This is a fundamental economic principle that holds that the quantity of a
product purchased varies inversely with its price. In other words, the higher
the price, the lower the quantity demanded. And at lower prices, consumer
demand increases.

The law of demand works with the law of supply to explain how market
economies allocate resources and determine the price of goods and services
in everyday transactions.

What Is the Difference Between a Demand Curve and

a Supply Curve?
A demand curve represents the relationship between the price of a good or
service and the quantity demanded for a given period of time. Typically, as the
price rises, the demand falls; as a result, the curve slopes down from left to
right. A supply curve is a graphic representation of the correlation between the
cost of a good or service and the quantity supplied for a given time period.
Typically, as the price of a product increases, the quantity supplied also
increases. The resultant curve slopes upward from left to right.

Does the Demand Curve Slope Downward or

Upward?
The demand curve generally slopes downward from left to right, illustrating
that as the price of a good rises, the demand for it falls. However, there are
exceptions to the rule—for Giffen goods and Veblen goods, for example. In
both cases, rising prices tend to accompany a rise in demand, leading to a
demand curve that rises from left to right.

The Bottom Line

A demand curve is a graphic display of the change in demand of a good
resulting from a change in price in a given time period. On the demand curve
graph, the vertical axis denotes the price and the horizontal axis denotes the
quantity demanded. A demand curve can be a useful business tool because it
can show the prices at which consumers start buying less or more. It can also
point out the prices at which a company can maintain consumer demand and
earn reasonable profits.
 PART OF

Practical Look At Microeconomics

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The Law of Supply

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They, Types, and How it Works with in
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Examples
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Related Terms
Demand Theory: Definition in Economics and Examples
Demand theory is a principle relating to the relationship between consumer demand for
goods and services and their prices. more

What Is the Law of Demand in Economics, and How Does It

Work?
The law of demand states that quantity purchased varies inversely with price. In other
words, the higher the price, the lower the quantity demanded. more

What Is Quantity Supplied? Example, Supply Curve Factors, Partner Links

and Use
The quantity supplied is a term used in economics to describe the number of goods or
services that are supplied at a given market price. more

Change in Supply: What Causes a Shift in the Supply Curve?

Change in supply refers to a shift, either to the left or right, in the entire price-quantity
relationship that defines a supply curve. more

Demand: How It Works Plus Economic Determinants and

the Demand Curve
Demand is an economic principle that describes consumer willingness to pay a price for
a good or service. more

Supply Curve Definition: How it Works with Example

A supply curve is a representation of the relationship between the price of a good or
service and the quantity supplied for a given period of time. more

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Income Effect vs. Price Effect: What’s the
Difference?

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