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Demand curve


A curve relating price per unit of a product to the quantity of the product which the consumer wishes to buy. The demand curves of all consumers in the market can be aggregated to obtain the market demand curve, showing the total amount of the good which consumers will wish to buy at each price. The demand curve is usually drawn between axes, with price on the vertical and quantity demanded on the horizontal, and is generally portrayed as sloping downwards from left to right. This reflects the so-called 'law of demand', which can be stated thus: the lower the price, the greater is the quantity of the product demanded. This 'law', to which there may be exceptions, is based on an analysis of the income effect and the substitution effect of price changes. Important exceptions may occur (a) where price of the product is taken as an indicator of its quality, e.g. wine, (b) where the good is an article of ostentation, so that the higher its price the more people wish to own it, e.g. certain types of motor car or fur coats, and (c) where there is a speculative element in the purchase of something, so that a price rise now leads to the expectation of a further price rise and more of the good will be bought (e.g. stocks and shares). In each of these cases the demand curve will slope upwards from left to right

Reference: The Penguin Dictionary of Economics, 3rd edt.