What demand is and the law of demand

Watch a plantain seller at Dove Cut market cut her price late in the afternoon, and the crowd at her stall grows. That pattern, more bought at a lower price, is the law of demand, and its graph is the most drawn diagram in WASSCE Economics.

Learning objectives

By the end of this lesson you should be able to:

• define demand and effective demand
• draw a demand schedule and a demand curve
• build a market demand schedule from individual schedules
• state the law of demand and explain why the demand curve slopes downwards

What is demand?

Three ideas are packed into this definition:

1. Willing and able: wanting something is not enough. A pupil who would love a laptop but has no money for it does not demand it in the economic sense.
2. At a given price: demand is always linked to a price.
3. Over a period of time: per day, per week or per month.

The demand schedule

An individual demand schedule shows one buyer's demand. The market demand schedule adds up the quantities demanded by all buyers at each price.

The demand curve

Plot the schedule on a graph with price on the vertical axis and quantity demanded on the horizontal axis, then join the points. The result is the demand curve, labelled D. It slopes downwards from left to right.

Figure 1. The demand curve for plantain, drawn from the schedule. WASSCE Tutor diagram.

Moving from A to B, the price falls and the quantity demanded rises: an extension of demand. Moving from B to A is a contraction of demand.

The law of demand

Price and quantity demanded move in opposite directions: an inverse relationship.

Why the demand curve slopes downwards

1. The income effect. When the price of a good falls, the buyer's money goes further: their real income rises, so they can buy more.
2. The substitution effect. When the price of a good falls, it becomes cheaper compared with its substitutes, so buyers switch to it. If plantain becomes cheaper, some families buy plantain instead of yam.
3. Diminishing marginal utility. Each extra unit of a good gives less satisfaction than the one before, so consumers will buy more only at a lower price.
4. New buyers. A lower price brings in people who could not afford the good before.
5. Different uses. At a lower price a good may be used for more purposes; cheap palm oil may be used for soap-making as well as cooking.

Key points

• Demand = the quantity consumers are willing and able to buy at a given price, over a period.
• A demand schedule is a table; a demand curve is its graph, sloping downwards.
• The law of demand: price up, quantity demanded down (other things being equal).
• The curve slopes down because of the income effect, the substitution effect and diminishing marginal utility.

WASSCE examination focus

Quick check

1. Why does a pupil who wants a car but has no money not "demand" one?
2. Using the schedule above, how many bunches are demanded at NLe 15?
3. State the law of demand.

Answers: 1. Because demand must be backed by the ability to pay (effective demand). 2. 60 bunches. 3. Other things being equal, the higher the price, the lower the quantity demanded, and the lower the price, the higher the quantity demanded.