3.2 Demand Curves

  • Demand: how much of a good or service people want at different prices. It’s often represented on a graph like this:

  • Price is on the vertical axis, and quantity demanded is on the horizontal axis.
  • The curve slopes downward: as price decreases, quantity demanded increases.
  • Example: During sales (like Black Friday), lower prices lead to higher purchases (like more shirts, pants, video games).


Demand and Incentives

  • The demand curve reflects how people respond to economic incentives.
  • Lower prices incentivize consumers to buy more.
  • Every good or service has its own demand curve (eggs, iPhones, gasoline, designer shoes, airplane flights).

Demand for Oil

  • High-value uses: Fueling planes (there are few substitutes)
  • Low-value uses: Making plastic toys (many substitutes: wooden toys, cloth toys)

  • As oil prices rise:
    • Plastic toys get more expensive and consumers stop buying them
    • High-value uses (air travel) remain in demand due to lack of substitutes
    • At high prices, only the highest-value users (with no substitutes) continue to demand oil.


  1. On Black Friday, stores drastically reduce their prices. According to the law of demand, what would you expect to happen to the quantity of goods purchased?

    1. Quantity purchased decreases
    2. Quantity purchased increases significantly
    3. Quantity purchased stays the same
    4. Quantity purchased decreases slightly

    Answer:

  2. As oil prices rise, which market would you expect to be affected first?

    1. Airlines purchasing jet fuel
    2. Manufacturers of plastic products
    3. Military operations
    4. Emergency medical helicopters

    Answer:

  3. A car manufacturer is deciding whether to develop a more fuel-efficient vehicle. Under which scenario would this investment likely make the most business sense?

    1. When oil prices are expected to remain low
    2. When oil prices are expected to rise significantly
    3. When there’s an oversupply of oil
    4. When oil prices are expected to fall significantly

    Answer:

Consumer Surplus

  1. Your roommate just bought an iphone for $200, but she would have been willing to pay $500 for it. How much consumer surplus does your roommate enjoy from the iphone?

    1. $200
    2. $300
    3. $500

    Answer:

    For the next few questions, consider the demand curve \(\text{price} = 100 - \text{quantity}\)

  2. Use ggplot to sketch this demand curve. What are the x and y intercepts?

Answer:

  1. How low does the price have to go to sell the first unit of the good? How low does the price have to go to sell the 50th unit of the good? How low does the price have to go to sell all 100 units of the good?

    Answer:

  2. If the price of this good is $30, how many units are sold? Calculate the total consumer surplus, which is measured in dollars.

    Answer:

Shifts in the Demand Curve

  • The demand curve is never stagnant: it’s always shifting, increasing and decreasing due to market forces.
  • An increase in demand is when the demand curve shifts up and to the right. This is when people are willing to buy more at any given price.
  • A decrease in demand is when the demand curve shifts down and to the left. This is when people are no longer willing to buy as much at any given price.

What Shifts the Demand Curve?

Changes in:

  • Income: rising incomes means people may be willing to buy more luxury cars at any price, but less instant noodles.
  • Population: an aging population means people may be willing to buy more healthcare services at any price.
  • Related Goods: if the price of gasoline decreases, people may be willing to buy more SUVs at any price.
  • Expectations: if people expect the price of housing to rise next year, they may be willing to buy more houses at any price now.

  1. After TikTok trends promoted “Stanley cups” in 2023-2024, what happened to the demand curve for these water bottles?

    1. Shifts right
    2. Shifts left
    3. No change

    Answer:

  2. After interest rates rose significantly in 2023, causing mortgage payments to increase, what happened to the demand curve for housing?

    1. Shifts right
    2. Shifts left
    3. No change

    Answer:

  3. When AI tools like ChatGPT became widely available in 2023, what happened to the demand curve for traditional tutoring services?

  1. Shifts right
  2. Shifts left
  3. No change
Answer:
  1. In simple terms, Ozempic works to help people lose weight by keeping users from craving high calorie foods. If Ozempic became widely available and inexpensive in the United States, what would happen to the demand curve for high-calorie foods?
  1. Shifts right
  2. Shifts left
  3. No change
Answer:
  1. After the success of “Barbie” movie in 2023, what happened to the demand curve for Barbie dolls and merchandise?
  1. Shifts right
  2. Shifts left
  3. No change
Answer:
  1. When many tech companies conducted layoffs in 2023-2024, what happened to the demand curve for luxury apartments in tech hubs like San Francisco?
  1. Shifts right
  2. Shifts left
  3. No change
Answer:
  1. After streaming services like Netflix cracked down on password sharing in 2023, what happened to the demand curve for individual subscriptions?
  1. Shifts right
  2. Shifts left
  3. No change
Answer:
  1. When remote work policies became more restrictive in 2023-2024, what happened to the demand curve for office attire?
  1. Shifts right
  2. Shifts left
  3. No change
Answer: