Week 3 · Chapter

Chapter 3 — Demand

Principles of Microeconomics Free sample edition

The module's primary reading · ~35–45 minutes · Objective 2 (explain how demand and supply determine a market's equilibrium price and quantity, and predict how a shift in demand or supply changes them), building on Objective 1 (use the tools of economic modeling — scarcity, opportunity cost, the production possibilities frontier, comparative advantage, and the gains from trade — and distinguish positive statements (what is) from normative statements (what ought to be)) · Read it first this week; the lecture, the slide deck, the tutorial, the quiz, and the Model Workshop all build on it.

In plain language

This week is about what buyers want and how the price changes it. When something costs more, people tend to buy less of it, and when it costs less, they buy more. Economists call that pattern the law of demand (the rule that a higher price means a smaller amount wanted, with everything else held still). They write it down as a demand schedule (a table of prices and the amounts buyers want) and draw it as a demand curve (the same table as a picture). The big skill this week is telling two kinds of change apart: a price change that slides buyers along the curve, and a change in something else that moves the whole curve.

Why you already care about this

Think about the last time a price you see every week jumped. Maybe a rideshare app showed a surge fare after a concert, and you walked to the bus instead. Maybe a favorite snack went on sale, and you bought three instead of one. You did not need a formula to react. You weighed the price against what else your money could do, which is the opportunity cost idea from Week 1.

Now picture a whole town of buyers reacting the same way. At 4 dollars a unit, buyers in this chapter's market want 50 units a day. At 8 dollars, they want only 10. And if everyone's paycheck grows, they want 20 more units at every price. Those three facts are the whole chapter in miniature: a schedule, a movement along it, and a shift of it.

By the end of this chapter you will be able to:

state the law of demand and say why it holds other influences fixed;
build a demand schedule from a rule such as Qd = 90 − 10P and draw the demand curve in words;
add individual buyers' quantities to get market demand at each price;
tell a change in quantity demanded (a movement along the curve) from a change in demand (a shift of the curve);
name which way demand shifts for a change in income, a related good's price, tastes, expectations, or the number of buyers.

Carry this sentence with you: own price moves you along; anything else moves the curve.

Where we are

Already covered: Week 1 taught scarcity, opportunity cost, the production possibilities frontier, and how economists model with ceteris paribus ("all else equal"). Week 2 showed why specialization and trade make both sides better off.
This week: the demand side of a market: the law of demand, the demand schedule and curve, market demand, and the difference between a movement along demand and a shift of demand.
How they connect: the law of demand is a model in exactly the Week 1 sense; it holds everything but the price fixed so that one cause stands out.
Where we're going next: Week 4 adds supply and puts the two curves together to find the market price, so this week builds the half of the model that buyers control.

Week 1 is the chapter this one leans on most. Recall that a positive statement is a claim that evidence could check, and that ceteris paribus means holding every other influence fixed while one thing changes. The law of demand is a positive statement made ceteris paribus. Week 2's terms of trade were a barter ratio between two goods. This week, prices are in dollars, and the question is how buyers respond to them.

1. State the law: higher price, smaller amount wanted

Start with a plain observation. When the price of something goes up, people buy less of it. Some buyers switch to something else. Others make do with less. When the price falls, the opposite happens. That pattern shows up for groceries, gasoline, movie tickets, and phone plans.

The law of demand says that, with every other influence held fixed, a higher price for a good lowers the quantity buyers want to buy and a lower price raises it; this negative link between price and quantity is why a demand curve slopes downward.

Two words in that definition do a lot of work. The first is "fixed." If incomes, tastes, and other prices are all changing at the same time as the price, you cannot tell which change caused what. Ceteris paribus lets you look at price alone. The second is "quantity." The law is about how much buyers want at a price, which is why economists give that amount its own name.

Quantity demanded is the amount of a good that buyers want to buy at one particular price during a stated period; it changes only when the good's own price changes.

The law of demand is a positive statement. It predicts what buyers will do, and data on prices and purchases can test it. It does not say whether a price is fair or whether people should buy less. Those would be normative questions.

Misconception check. Students often think the law of demand fails when they see prices and purchases rising together, such as more people buying flights in a summer when fares are high. The cure: ask what else changed. In summer, more people want to travel at every fare. That is a change in something other than the price, and the law only promises what happens when the price changes alone.

2. Read the schedule: a table of prices and amounts

A demand schedule is the simplest way to write down what buyers want. Picture a list taped beside a register. At each possible price, it says how many units the market's buyers would take that day.

A demand schedule is a table that lists, for each price of a good, the quantity buyers want to buy at that price, with everything else held fixed.

This course runs one market from week to week. It sells a single good by the unit, and its numbers are illustrative, constructed for this course rather than taken from a real market. Its demand side follows one rule: Qd = 90 − 10P. Here P is the good's own price in dollars, and Qd is quantity demanded, in units per day.

Worked example — building the schedule. Put each price into the rule, one line at a time.

At 4 dollars. Qd = 90 − 10 × 4 = 90 − 40 = 50 units per day.
At 5 dollars. Qd = 90 − 10 × 5 = 90 − 50 = 40 units per day.
At 6 dollars. Qd = 90 − 10 × 6 = 90 − 60 = 30 units per day.
At 7 dollars. Qd = 90 − 10 × 7 = 90 − 70 = 20 units per day.
At 8 dollars. Qd = 90 − 10 × 8 = 90 − 80 = 10 units per day.

The results fill the table.

Demand schedule for the course's running market: price in dollars and quantity demanded in units per day (illustrative)
Price (dollars)	Quantity demanded (units per day)
4	50
5	40
6	30
7	20
8	10

Read down the table and the law of demand appears. Each 1-dollar rise in the price lowers quantity demanded by 10 units per day, so 50 − 40 = 10 and 20 − 10 = 10. At 4 dollars buyers want 50 units versus 10 at 8 dollars, five times as many. A shop owner reading this table can see that doubling the price from 4 to 8 dollars cuts what these buyers want from 50 units a day to 10.

The rule also tells you where buying stops. At 9 dollars, Qd = 90 − 10 × 9 = 90 − 90 = 0, so no one buys at a price of 9 dollars or more.

In practice (your tools). In Google Sheets, type the prices 4 to 8 in cells A2 to A6. In B2, type =90-10*A2 and copy it down to B6. Column B shows 50, 40, 30, 20, and 10. Change any price in column A and the matching quantity updates, which is the schedule doing its job.

Misconception check. Students often read the schedule as five different markets, or as five days. It is one market on one day, listing what buyers would want at each price they might face. Only one price will actually be charged. The cure: read each row as an "if": if the price were 7 dollars, buyers would want 20 units.

3. Draw the curve: the schedule as a picture

A table is precise, but a picture shows the pattern at a glance. Economists put the schedule on a graph, and the line they draw is the demand curve.

A demand curve is a graph of the demand schedule with price on the vertical axis and quantity on the horizontal axis; it slopes downward from left to right because of the law of demand.

Here is the curve for the course's market, described in words. The horizontal axis is quantity demanded, in units per day, running from 0 to 60. The vertical axis is price, in dollars, running from 0 to 10. Five dots come from the schedule: (10, 8), (20, 7), (30, 6), (40, 5), and (50, 4), each written as (quantity, price). All five sit on one straight line. The line starts high on the left at (10, 8) and falls steadily to (50, 4) on the lower right. Extended upward, it meets the price axis at 9 dollars, where quantity demanded is 0.

Putting price on the vertical axis feels backward to some students, since price is the cause. It is the economists' convention, and it goes back a long way. Alfred Marshall's Principles of Economics (1890) drew demand and supply together as the two blades of a pair of scissors, neither of which cuts alone. This week builds the demand blade. Next week adds the other one.

A caveat about this model: a real demand curve is rarely a perfect straight line. The straight line here is a classroom model that makes the logic easy to see. The logic, a downward slope, carries over to curves of any shape.

In practice (your tools). In Desmos, quantity goes on the x-axis and price on the y-axis. Type y = 9 - x/10 and Desmos draws the demand curve. Click the line at x = 30 and Desmos shows the dot (30, 6): at 6 dollars, buyers want 30 units. Click at x = 50 and you see (50, 4).

Misconception check. Students often draw the demand curve sloping upward, because "more quantity" feels like it should go with "more price." The cure: check one pair. At 4 dollars buyers want 50 units, and at 8 dollars only 10. A lower price goes with a larger quantity, so the line must fall as you move right.

4. Add up the buyers: market demand

A market is made of many buyers. Each one has an individual demand: how much that one person or household wants at each price. The market's demand is all of them added together.

Market demand is the total quantity that all buyers in a market want at each price, found by adding every buyer's quantity at that same price.

The key words are "at that same price." You add across buyers while holding the price still, then move to the next price and add again.

Worked example — ten identical buyers. One way to read the course's market is as ten identical buyers. Each buyer wants q = 9 − P units a day, where q is one buyer's quantity demanded.

One buyer at 4 dollars. q = 9 − 4 = 5 units.
The market at 4 dollars. 10 × 5 = 50 units.
One buyer at 8 dollars. q = 9 − 8 = 1 unit.
The market at 8 dollars. 10 × 1 = 10 units.

In words: at each price, the market wants ten times what one buyer wants, which lands exactly on the schedule's 50 at 4 dollars and 10 at 8 dollars. Real buyers are not identical. One shopper might want 8 units and another none. The rule for adding them is the same: line up the buyers at one price and add their quantities.

Misconception check. Students often add up prices instead of quantities, or average the buyers' prices. The cure: price is the thing you hold fixed. At one price, add how many units each buyer wants. The price of the market row stays the same price.

5. Move along the curve: a change in quantity demanded

Picture the price tag changing while nothing else does. Incomes are the same, tastes are the same, and so are the prices of every other good. Buyers respond only to the new price. On the graph, they slide from one dot to another on the same line.

A movement along the demand curve is a move from one point to another on an unchanged demand curve, caused only by a change in the good's own price; it is a change in quantity demanded.

Worked example — the price falls from 6 to 5 dollars. Use the original schedule.

Before. At 6 dollars, quantity demanded is 30 units per day.
After. At 5 dollars, quantity demanded is 40 units per day.
The change. 40 − 30 = 10 units, on the same curve.

In words: the lower price raised quantity demanded by 10 units a day. Demand itself did not change. The whole schedule, from 50 at 4 dollars to 10 at 8 dollars, is exactly what it was. Buyers moved down the line from (30, 6) to (40, 5).

That gives us the second meaning of the word demand.

Demand is the whole relationship between a good's price and the quantity buyers want at each price, shown as a full schedule or a full curve rather than as one number.

So "demand" names the entire line, and "quantity demanded" names one spot on it. A price change picks a different spot. It never redraws the line.

Misconception check. Students often say "the price fell, so demand rose." It is the most common wrong turn in this course. What rose is quantity demanded, a movement along the curve. The cure: whenever the cause is the good's own price, say "quantity demanded," and keep the word "demand" for a change in the whole curve.

Pause and reflect — choose one. Pick either prompt; they count the same.

(a) Think of something you bought more of after its price dropped. Describe it in two sentences, using "quantity demanded" correctly.
(b) Find a sentence in a news story or an ad that says "demand rose" or "demand fell." Decide whether the writer meant a change in demand or a change in quantity demanded, and explain why in two sentences.

6. Shift the curve: a change in demand

Now leave the price tag alone and change something else. Suppose buyers' incomes rise. At every price on the list, people with more income want more of an ordinary good. The whole curve moves.

A shift of the demand curve is a move of the whole demand curve, caused by a change in something other than the good's own price; it is a change in demand, and an increase moves the curve right while a decrease moves it left.

Worked example — income rises. Treat the good as a normal good, one that buyers want more of when they earn more. A rise in income moves demand to Qd = 110 − 10P.

At 6 dollars. Qd = 110 − 60 = 50, which is 30 + 20.
At 4 dollars. Qd = 110 − 40 = 70.
At 8 dollars. Qd = 110 − 80 = 30.

In words: buyers now want 20 more units at every price. The curve shifted right, an increase in demand. In the ten-buyer reading, each buyer now wants q = 11 − P units, two more than before at every price.

Worked example — income falls. A fall in income moves demand the other way, to Qd = 70 − 10P.

At 6 dollars. Qd = 70 − 60 = 10, which is 30 − 20.
At 4 dollars. Qd = 70 − 40 = 30.
At 5 dollars. Qd = 70 − 50 = 20.

In words: buyers want 20 fewer units at every price, and on this lower curve no one buys at 7 dollars or more. The curve shifted left, a decrease in demand.

Here are all three curves side by side.

Quantity demanded in units per day on the original, increased, and decreased demand curves at three prices (illustrative)
Price (dollars)	After a decrease: Qd = 70 − 10P	Original: Qd = 90 − 10P	After an increase: Qd = 110 − 10P
4	30	50	70
5	20	40	60
6	10	30	50

Described as a graph, the three curves are parallel straight lines that all fall from upper left to lower right. The original line runs through (30, 6). The increased line sits 20 units to the right of it at every price and runs through (50, 6). The decreased line sits 20 units to the left and runs through (10, 6).

One price, three curves: at 6 dollars buyers want 10 units on the lower curve, 30 on the original, and 50 on the higher one, so the 20-unit gaps come from the shift, not from the price. A store manager who sees sales jump by 20 units with no change in the price tag should look for a shift.

In practice (your tools). In Desmos, type y = a - x/10 and accept the slider Desmos offers for a. Set a to 9 and you have the original curve. Move a to 11 and the line slides right; it now passes through (50, 6). Move a to 7 and it slides left, through (10, 6). In Google Sheets, put =110-10*A2 in column C and =MAX(0,70-10*A2) in column D beside the original schedule. The MAX keeps the lower curve at 0 once the price reaches 7 dollars, since buyers cannot want fewer than zero units.

Misconception check — the wrong direction. Students often draw an increase in demand as a shift up and to the left, because "increase" sounds like "higher." The cure: an increase means more is wanted at every price, so read along any price line. At 6 dollars the increased curve gives 50 units, more than 30, which sits to the right. Right is more; left is less.

7. Sort the determinants of demand

What can shift a demand curve? Economists group the causes into five determinants. Each is something other than the good's own price, and each change has a direction you can name. The examples below are fresh scenarios told in words, separate from the course's running market.

The determinants of demand are the influences other than a good's own price that set how much buyers want at every price: income, the prices of related goods, tastes, expectations about the future, and the number of buyers.

Income. For most goods, more income means more demand. Think of new running shoes: a household that gets a raise is more likely to buy a pair at any price.

A normal good is a good whose demand rises when buyers' incomes rise and falls when incomes fall.
An inferior good is a good whose demand falls when buyers' incomes rise and rises when incomes fall, because buyers with more income switch to something they like better; it says nothing about the good's quality.

Instant noodles are a common inferior good. A student who lands a better-paying job may buy fewer packs and cook fresh meals instead. Demand for the noodles shifts left as income rises.

Prices of related goods. Some goods stand in for each other. Others go together.

Substitutes are two goods that buyers use in place of each other, so a rise in the price of one raises the demand for the other.
Complements are two goods that buyers use together, so a rise in the price of one lowers the demand for the other.

Bike-share rides and electric-scooter rentals are substitutes for a short trip downtown. If scooter rentals get more expensive, demand for bike-share rides shifts right. Game consoles and video games are complements. If consoles get more expensive, fewer people own one, and demand for games shifts left.

Tastes. When a cooking show makes a spice blend popular, buyers want more of it at every price. Demand shifts right.

Expectations. If shoppers expect laptops to go on sale next month, many wait. Demand for laptops this month shifts left.

Number of buyers. When a new apartment building opens next to a laundromat, there are more buyers for its washers. Demand shifts right.

Worked example — naming the curve and the direction. For each change, decide whether it is the good's own price, and if not, which way demand shifts.

The price of bike-share rides rises. That is the good's own price, so it is a movement along the bike-share demand curve: quantity demanded falls.
The price of scooter rentals rises. That is a substitute's price, so demand for bike-share rides shifts right.
Incomes rise, and the good is instant noodles. That is income for an inferior good, so demand for noodles shifts left.

Misconception check. Students often read "inferior good" as "low-quality good." The term is about how demand responds to income, not about how good the product is. A well-made, well-loved product can still be inferior if people buy less of it as they earn more. The cure: test the income response, never the quality.

Misconception check — complements. Students often think a rise in a complement's price raises demand for the other good. It works the other way. If consoles cost more, fewer people buy them, and fewer console owners means less demand for games. The cure: ask whether the two goods are used together. If yes, a price rise for one shifts the other's demand left.

Pause and reflect — choose one. Pick either prompt; they count the same.

(a) Name one good you would buy less of if your income doubled, and explain why that makes it an inferior good for you, not a low-quality one.
(b) Name two goods you use together and two you use in place of each other. For one pair, say which way demand for one shifts when the other's price rises.

8. Check the classic wrong turns

Most mistakes this week are not deep confusions. They are a word swapped or a curve moved the wrong way. The fix is a short routine you run every time something changes.

Step one: name the cause. Is it the good's own price, or something else?
Step two: if it is the own price, say "quantity demanded" and move along the curve.
Step three: if it is anything else, say "demand," name the determinant, and shift the whole curve: right for an increase, left for a decrease.

Worked example — two changes, one market. Take the course's market at a price of 6 dollars, where buyers want 30 units.

The price falls to 5 dollars. Own price, so it is a movement along the curve. Quantity demanded rises from 30 to 40, a change of 40 − 30 = 10 units.
Incomes rise, and the good is normal. Not the own price, so demand shifts right to Qd = 110 − 10P. At 6 dollars, buyers now want 110 − 60 = 50 units, 20 more than before.

In words: the first change moved buyers 10 units along the same curve, and the second moved the whole curve 20 units right. Both raised the amount bought at some price, but only the second one is a change in demand.

There is one more limitation to keep in view. This chapter can tell you how much buyers want. It cannot yet tell you what price the market will settle on, because that depends on sellers too. When demand shifts right, the price buyers end up paying is a question for next week, once supply is on the graph.

Misconception check. Students often jump from "demand increased" to a new market price this week. The demand curve alone cannot give you that. The cure: after a shift, report which curve moved, which way, and how much more or less buyers want at each price, and leave the new market price for the week that adds supply.

Key terms

Law of demand — With every other influence held fixed, a higher price for a good lowers the quantity buyers want to buy and a lower price raises it; this negative link between price and quantity is why a demand curve slopes downward. (first used: 1. State the law: higher price, smaller amount wanted)
Quantity demanded — The amount of a good that buyers want to buy at one particular price during a stated period; it changes only when the good's own price changes. (first used: 1. State the law: higher price, smaller amount wanted)
Demand schedule — A table that lists, for each price of a good, the quantity buyers want to buy at that price, with everything else held fixed. (first used: 2. Read the schedule: a table of prices and amounts)
Demand curve — A graph of the demand schedule with price on the vertical axis and quantity on the horizontal axis; it slopes downward from left to right because of the law of demand. (first used: 3. Draw the curve: the schedule as a picture)
Market demand — The total quantity that all buyers in a market want at each price, found by adding every buyer's quantity at that same price. (first used: 4. Add up the buyers: market demand)
Movement along the demand curve — A move from one point to another on an unchanged demand curve, caused only by a change in the good's own price; it is a change in quantity demanded. (first used: 5. Move along the curve: a change in quantity demanded)
Demand — The whole relationship between a good's price and the quantity buyers want at each price, shown as a full schedule or a full curve rather than as one number. (first used: 5. Move along the curve: a change in quantity demanded)
Shift of the demand curve — A move of the whole demand curve, caused by a change in something other than the good's own price; it is a change in demand, and an increase moves the curve right while a decrease moves it left. (first used: 6. Shift the curve: a change in demand)
Determinants of demand — The influences other than a good's own price that set how much buyers want at every price: income, the prices of related goods, tastes, expectations about the future, and the number of buyers. (first used: 7. Sort the determinants of demand)
Normal good — A good whose demand rises when buyers' incomes rise and falls when incomes fall. (first used: 7. Sort the determinants of demand)
Inferior good — A good whose demand falls when buyers' incomes rise and rises when incomes fall, because buyers with more income switch to something they like better; it says nothing about the good's quality. (first used: 7. Sort the determinants of demand)
Substitutes — Two goods that buyers use in place of each other, so a rise in the price of one raises the demand for the other. (first used: 7. Sort the determinants of demand)
Complements — Two goods that buyers use together, so a rise in the price of one lowers the demand for the other. (first used: 7. Sort the determinants of demand)

Summary

The law of demand: a higher own price lowers quantity demanded, with everything else held fixed.
A demand schedule lists prices and quantities; the demand curve draws it, sloping downward.
Market demand adds every buyer's quantity at the same price.
A change in the good's own price is a movement along the curve, a change in quantity demanded.
A change in anything else shifts the curve, a change in demand.
An increase in demand shifts the curve right; a decrease shifts it left.
Income, related goods' prices, tastes, expectations, and the number of buyers are the determinants of demand.
An inferior good is about the income response, not about quality.

Check your understanding

Work these before looking at the answers — they are ungraded, and the answers (with reasoning) are at the bottom of the page.

A taco truck has three regular lunch customers (an illustrative case). At 3 dollars a taco, Ana wants 4 tacos, Kwame wants 2, and Mei wants 3. At 5 dollars, Ana wants 2, Kwame wants 1, and Mei wants 1. Compute the market's quantity demanded at each price and say whether the law of demand holds.
A friend says, "Phone cases went on sale, so demand for phone cases went up." Rewrite the sentence so it is correct, and explain the change in one sentence.
Incomes in a town rise. Decide which way demand shifts for (a) restaurant gift cards, assumed to be a normal good there, and (b) store-brand frozen dinners, assumed to be an inferior good there.
An illustrative bike-repair shop's demand for tune-ups is Qd = 60 − 2P, with P in dollars and Qd in tune-ups a month. A new cycling club forms in the neighborhood, and demand becomes Qd = 72 − 2P. Compute quantity demanded at 15 dollars before and after, name the determinant, and say which way the curve shifted.

Answers (worked reasoning — read after attempting)

At 3 dollars: 4 + 2 + 3 = 9 tacos. At 5 dollars: 2 + 1 + 1 = 4 tacos. The market wants fewer tacos at the higher price, 4 instead of 9, so the law of demand holds for this market. Notice that you added quantities at one price at a time; you never added the prices.
A better sentence is "Phone cases went on sale, so the quantity demanded of phone cases went up." The cause is the good's own price, so buyers moved along an unchanged demand curve; demand itself did not change.
(a) Demand for restaurant gift cards shifts right, because buyers want more of a normal good at every price when they earn more. (b) Demand for store-brand frozen dinners shifts left, because buyers of an inferior good switch to something they like better as income rises. Neither answer depends on quality.
Before: Qd = 60 − 2 × 15 = 60 − 30 = 30 tune-ups. After: Qd = 72 − 2 × 15 = 72 − 30 = 42 tune-ups. That is 42 − 30 = 12 more at 15 dollars, and 12 more at every other price too. The determinant is the number of buyers, and demand shifted right. The shop's price did not change at all, which is how you know this is a shift and not a movement along the curve.

Next up in this module: the Readings & Resources page, the lecture tutorial, the practice set, and the quiz — and next week the supply curve joins demand, and the rule Qd = Qs finds the market price.

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