Holt 7525-9 S15_IT

Example 2A:
Market for Good X
Demand Schedule
Price
Quantity Demanded
$7 0
6 5
5 10
4 15
3 20
2 25
1 30
The same information can be placed on a graph by plotting the points (coordinates) that
represent each combination of price and quantity demanded. The demand curve for Good X is
then created by connecting the points. The demand curve for Good X is shown in Example 2B
below. Notice that the demand curve in Example 2B slopes downward from left to right. Demand
curves have a negative slope because of the inverse (negative) relationship between price and
quantity demanded.
If the price of Good X changes, there is a movement along the demand curve from one
combination of price and quantity demanded to another combination of price and quantity
demanded. In Example 2B, at a price of $4, the quantity demanded is 15 units. If the price
decreases to $3, the quantity demanded increases to 20 units.
Example 2B:
.
$7 -
.
6 -
5 - .
Price 4 - .
3 -
.
2 -
.
1 -
. D
0
0 5 10 15 20 25 30 35 40
Quantity
But what would cause the quantity demanded to increase or decrease at every price? In other
words, what factors would cause the demand curve to shift to the right (increase) or to the left
(decrease)? The factors that shift the demand curve are the determinants of demand.
Determinants of demand:
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
1. Income;
a. For normal goods, income and demand are directly related. An increase in income will
cause an increase in demand (demand curve shifts to the right). A decrease in income will
cause a decrease in demand. Most goods are normal goods.
Demand, Supply, and Equilibrium 3 - 2