Demand and the law of demand

In the OpenStax gasoline table, raising the price from $1.00 to $2.20 a gallon cuts the quantity demanded from 800 to 420 million gallons.

What demand means

In everyday speech "demand" means wanting something. Economists mean something narrower. Demand is the amount of a good or service that buyers are willing and able to buy at each price. Both parts matter. Wanting a car is not demand for a car if you cannot pay for it, and having the money is not demand if you have no use for the car. OpenStax notes that a person without a driving licence has no effective demand for a car.

The price is what a buyer pays for one unit. The quantity demanded is the total number of units buyers would purchase at that particular price. A demand schedule lists the quantity demanded at several prices, and a demand curve draws the same information on a graph.

The law of demand

Read down the table. Every time the price goes up, the quantity demanded goes down. When gasoline gets dearer, people combine errands, share rides, take the bus or plan holidays closer to home. Economists call this inverse relationship the law of demand: a higher price leads to a lower quantity demanded, and a lower price to a higher one. On the graph it shows up as a curve that slopes down from left to right.

One detail surprises people who know some mathematics. Economists put price, the cause, on the vertical axis and quantity on the horizontal axis. That is the reverse of the usual habit of putting the independent variable along the bottom. OpenStax calls this an exception to the normal rule, and every economics textbook follows it, so it is worth getting used to.

Demand is the curve, quantity demanded is a point

This is the distinction that trips up most beginners. "Demand" is the whole relationship, the full table or the whole curve. "Quantity demanded" is one number on it, at one price. When the price of gasoline rises from $1.40 to $1.80, demand has not fallen. The quantity demanded has fallen, from 600 to 500 million gallons, by moving along the same curve. Try it in the model: drag the price line and only the point moves.

Now drag the blue curve itself to the right by 100. At every price the quantity is 100 million gallons higher. That is a change in demand, and it happens when something other than the price changes: incomes, tastes, the number of buyers, the prices of related goods or expectations about the future. A later unit looks at those causes one by one.

Other things being equal

A demand curve shows the link between price and quantity while everything else is held fixed. Economists use the Latin phrase ceteris paribus, "other things being equal", for this assumption. It does not claim that nothing else changes in real life. It lets us change one thing at a time, see its effect, and then add the effects together.