Lessons in Micro Economics - Demand

Demand curves show the relationships between the prices and quantity people are willing to consume of a given commodity. Generally speaking, the higher the price for a commodity, the less people demand it, with the exception of Giffen Goods.

Let's look at the market of a normal good like oranges as an example. Once upon a time, oranges were very rare and people used to give them to their beloveds instead of flowers or perfume because they were so valuable. They were willing to pay an equivalent of $100 for ONE orange. Not coincidentally, there was also a higher instance of rickets and malnutrition back then too.

 Now that the price of oranges is significantly lower, people can enjoy them every day for breakfast. Lower prices lead to people consuming more of them.

If oranges ever became super cheap, say two cents an orange, then people might use them for baseball practice!

It is important to note the difference between moving along the demand curve, and an actual shift in demand. This is a very common mistake for people first learning about economics and it will lead to huge points off on your homework and tests.

 A shift in demand is caused by a change in external factors. For example, if the economy is better overall people will have more money to spend and demand for all goods will increase, thus shifting their demand curves out. This is different than an individual grower charging more for oranges because he or she feels like it, and thus causing consumers to demand fewer of his or her oranges.

Factors That Shift Demand:

  Changes in disposable income

  Changes in tastes and preferences

  Changes in expectations

  Changes in prices of related goods (substitutes or compliments)

  Changes in size and composition of the population