The Law of Demand is the tendency for the price and the quantity demanded to move in opposite directions. Demand for goods changes because of the Substitution Effect and the Income Effect.
The substitution effect causes consumers to be less willing to buy goods or services at higher prices.
The income effect causes consumers to be less able to buy goods or services at higher prices.
Together, the two effects determine the quantity of a good or service that will be demanded at a given price.
Quantity Demanded is the amount of a good that consumers are willing and able to purchase at a particular price over a given period of time, all else being equal.
Quantity demanded is determined for a specific good or service, market, and time period. For example, if a certain truck is sold in the United States, and the only thing that changes is the price, how many will be sold in one year?
What happens if the price is raised or lowered? Move the slider to change the price of the truck, and watch how the number bought each year changes in response.
Trucks Bought per Year
A Demand Schedule is a table that indicates the quantity demanded of a particular good at various prices. By organizing data in a table, the main point of the law of demand is shown. Higher prices cause the quantity demand to decrease, all else being equal.
Add each option for the truck’s price to the demand schedule by moving the slider and pushing “add to schedule.”
| Price of Truck | Quantity bought per year |
| $10,000 | $40,000 |
| $15,000 | $35,000 |
| $20,000 | $30,000 |
| $25,000 | $25,000 |
| $30,000 | $20,000 |
| $35,000 | $15,000 |
Trucks Bought per Year
A Demand Curve is a graphical representation of the demand schedule, showing the quantity demanded at each price. By convention, the price is graphed on the vertical axis, and the quantity demanded is graphed on the horizontal axis.
Add each option for the truck’s price to the graph by moving the slider and pushing “add to graph.”
Demand
Since it is impractical to obtain data for every price at which goods or services are offered to the market, a curve is drawn between known points. A demand curve is not always curved; in this example, it is a straight line.
Using the demand curve, it is possible to find the amount of a good or service that the market will demand at any given price. The point on the curve at the same height as a given price (P) is directly above the quantity (Q) of the good or service that the market will demand at that price.
Did You Get It?
What quantity of trucks will be demanded at a price of $22,500?
Demand
Wrap Up
The law of demand states that a change in the price of a good affects the quantity demanded of that good.
For more information on the law of demand, read Chapter 4, Module 10 of Explorations in Economics and study the Module 10 Review and Assessment. You can also test yourself with the Module 10 online quiz here on the BCS.