What Is Demand Curve? How Marketer Can Use That?
If you are in some business school one thing you will learn is the demand curve. most of us think about what is demand curve is and what marketing people have to learn about it??
Disclaimer: The demand curve is not a road curve.
what is the definition of the demand curve?
In economics, a demand curve is a graph depicting the relationship between the price of a certain commodity (the y-axis) and the quantity of that commodity that is demanded at that price (the x-axis). Demand curves can be used either for the price-quantity relationship for an individual consumer (an individual demand curve) or for all consumers in a particular market (a market demand curve). (from Wikipedia)
What is the law of demand?
In microeconomics, the law of demand is a fundamental principle which states that there is an inverse relationship between price and quantity demanded. In other words, “conditional on all else being equal, as the price of a good increase (↑), quantity demanded will decrease (↓); conversely, as the price of a good decrease (↓), quantity demanded will increase (↑) (from Wikipedia)
But there are some exceptions when we think about the law of demand
Veblen goods, Giffen goods, and speculative bubbles where buyers are attracted to a commodity if its price rises.
Movement “along the demand curve” refers to how the quantity demanded changes when the price changes
The determinants of demand are:
- Income
- Tastes and preferences
- Prices of related (AKA complimentary) goods and services
- Prices of substitutes
- Number of potential consumers
Plotting Downward Slope
Calculating Slope
Since slope is defined as the change in the variable on the y-axis divided by the change in the variable on the x-axis, the slope of the demand curve equals the change in price divided by the change in quantity.
To calculate the slope of a demand curve, take two points on the curve. For example, use the two points labelled in this illustration. Between those points, the slope is (4–8)/(4–2), or -2. Note again that the slope is negative because the curve slopes down and to the right.
Since this demand curve is a straight line, the slope of the curve is the same at all
change in Quantity Demanded
A movement from one point to another along the same demand curve, as illustrated here, is referred to as a “change in quantity demanded.” Changes in quantity demanded are the result of changes in price.
Demand Curve Equations
The constant a embodies the effects of all factors other than price that affect demand. If income were to change, for example, the effect of the change would be represented by a change in the value of “a” and be reflected graphically as a shift of the demand curve. The constant b is the slope of the demand curve and shows how the price of the good affects the quantity demanded.
The graph of the demand curve uses the inverse demand function in which price is expressed as a function of quantity. The standard form of the demand equation can be converted to the inverse equation by solving for P:
The shift of a demand curve
A shift in the demand curve is when a determinant of demand other than price changes. It occurs when demand for goods and services changes even though the price didn’t.
A shift in the demand curve is an unusual circumstance when the opposite occurs. Price remains the same but at least one of the other five determinants change. Those determinants are:
Income of the buyers.
Consumer trends and tastes.
Expectations of future price, supply, needs, etc.
The price of related goods.
The number of potential buyers. This determinant applies to aggregate demand only.
Factors That Cause a Demand Curve to Shift
The curve shifts to the left if the determinant causes demand to drop. That means less of the good or service is demanded at every price. What happens during a recession when buyers’ incomes drop. They will buy less of everything, even though the price is the same.
The curve shifts to the right if the determinant causes demand to increase. This means more goods or services are demanded at every price. When the economy is booming, buyers’ incomes will rise. They’ll buy more of everything, even though the price hasn’t changed.
