Economics Interactive Tutorial (Instructions)

Demand

This tutorial introduces the concept of demand. We'll include some numerical examples to give you practice in interpreting demand charts and graphs.

Let's start with a definition.

ECONOMICS DEFINITION OF DEMAND

"Demand" is the relationship between the price that is charged and the amount that will be bought at that price.

From this definition, demand is not a single quantity. Rather, it is a table or graph showing some prices that might be charged and the corresponding amounts that buyers will want to buy.

"Quantity demanded" is the amount that will be bought at a particular given price.

Here's an example:

Suppose that the table below shows the demand for your small company's disposable surgical gowns. (Please forgive me if the prices are unrealistic.) The key idea, again, is that the demand is the entire table, not any one number in the table.

Demand for Disposable Hospital Gowns

The table shows some possible prices for gowns. Under each price is the corresponding number of gowns that buyers would buy per day at that price.

Price per gown: $1 $2 $3 $4 $5 $6

Quantity of Gowns Demanded per Day: 60 30 20 15 12 10

Based on this table, how many gowns will be bought per day if you charge $4 each? Click on the box below. Type a number. Then press Enter:

That question asked for the quantity demanded at that particular price of $4. Suppose now you raise your price. Does the quantity demanded go up or down? Click on Up or Down:

Please notice that the table (repeated below) says "... Gowns Demanded per Day". Demand quantities always have a time frame. If you charge $4 you can sell:
15 gowns per day, or
75 gowns per 5-day week, or
3750 gowns per 50-week year.
So, you have to specify a time frame.

Price per gown: $1 $2 $3 $4 $5 $6

Quantity of Gowns Demanded per Day: 60 30 20 15 12 10

You can also use the demand table to go from a quantity to sell to a price to charge. For example, if you want to sell 30 gowns per day, what price should you charge?

DEMAND GRAPHS

In textbooks, demand relations are often presented as graphs rather than tables. Mathematically the two are equivalent. Some people can't stand graphs, but many others find that graphs are easier to take in at a glance than tables are. So, for those of you who like graphs, here is that demand relation graphed:

                          DEMAND FOR DISPOSABLE GOWNS

Price
$6|         *

$5|           *

$4|              *

$3|                   *

$2|                             *

$1|                                                           *
   ....:....:....:....:....:....:....:....:....:....:....:....:

       5   10   15   20   25   30   35   40   45   50   55   60  Quantity

The points form a line that slopes downward from left to right. Most demand graphs do this. The downward slope means that at higher prices less is sold, while at lower prices more is sold.

Each * on the graph corresponds to a price-quantity pair in the table. This is shown in the graph below by labelling with A through F the points on the graph and the corresponding columns in the table.

                          DEMAND FOR DISPOSABLE GOWNS

Price

$6|         F
$5|           E
$4|              D
$3|                   C
$2|                             B
$1|                                                           A
   ....:....:....:....:....:....:....:....:....:....:....:....:
       5   10   15   20   25   30   35   40   45   50   55   60  Quantity

                 A       B       C       D       E       F
Price           $1      $2      $3      $4      $5      $6
Quantity        60      30      20      15      12      10

Which point on this graph tells you the quantity demanded when the price you charge is $2? Click on one:

Here's the graph again:

                          DEMAND FOR DISPOSABLE GOWNS

Price

$6|         F
$5|           E
$4|              D
$3|                   C
$2|                             B
$1|                                                           A
   ....:....:....:....:....:....:....:....:....:....:....:....:
       5   10   15   20   25   30   35   40   45   50   55   60  Quantity

                 A       B       C       D       E       F
Price           $1      $2      $3      $4      $5      $6
Quantity        60      30      20      15      12      10

When you change your price, you move along the demand graph from one point to another. Suppose your price was $2 and you change it to $4. You move along the demand graph to what point? Click on one:

DEMAND SHIFTS

Demand can shift. A shift in demand means that the relationship between price and quantity demanded changes. In the graph, all the quantities shift up (which is to the right) or down (which is to the left). In the table, shifting up means that all the quantity demanded numbers get bigger, while the prices stay the same. Shifting down means all the quantities demanded get smaller, while the prices stay the same. For example, suppose a rumor spreads that your gowns are not 100% waterproof. Which way will your demand probably shift? Click on Up or Down:

Please scroll up until you can see the entire graph and table below.

On the graph below, click the Change Demand button to see how demand might change in response to a nasty rumor. (You can click the button more than once.)

The bad rumor makes each point move to the left, which is "down." At every price, buyers will take fewer gowns than they used to. This is what economists mean by a "fall in demand."

                          DEMAND FOR DISPOSABLE GOWNS

Price
 6|    F
 5|     E
 4|      D
 3|         C
 2|              B
 1|                             A
   ....:....:....:....:....:....:....:....:....:....:....:....:
       5   10   15   20   25   30   35   40   45   50   55   60  Quantity

                 A       B       C       D       E       F
Price           $1      $2      $3      $4      $5      $6
Quantity        30      15      10       7       6       5

At the old higher demand, you could sell 30 gowns a day at $2. Now, at the new lower demand, how many can you sell at a price of $2?

When your demand shifts down, the amount you sell doesn't necessarily go down. It depends on what you do with your price. For example, you can keep on selling 30 gowns per day if you cut your price to what?

So, when demand shifts down, your price must go down or your quantity sold will go down, but not necessarily both.

Moving Along the Demand Graph versus Shifts in the Demand Graph

Statements like "Demand went up" or "Demand will go down" are ambiguous. They can mean a movement along the demand graph, as price changes. Or, they can mean a shift of the whole demand graph.

Here are some situations where someone might say the demand changed. Which ones are changes in the quantity demanded, moving along the demand curve in response to price changes? Which ones are changes in the demand curve itself? Click the correct choice after each statement:

As the AIDS epidemic spread, sales of rubber gloves skyrocketed.

A wellness clinic hires a handsome receptionist. More patients come.

You cut your price on physical examinations. More patients come.

The Federal government releases a report saying that your hospital has death rates that are significantly higher than average. Patients go elsewhere.

You extend your operating hours. You see more patients per day.

You double what you charge patients in your hospital emergency room. It only makes a little difference in patients per day.

You buy a mammography laboratory on wheels, and schedule stops around your area. More women get mammograms than before.

SUMMARY

The big idea of this tutorial is that demand is:

That's all for now. Thanks for participating!

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The views and opinions expressed in this page are strictly those of the page author. The contents of this page have not been reviewed or approved by the University of South Carolina.
http://hadm.sph.sc.edu/Courses/ECON/DEMAND/Demand.html
sam.baker@sc.edu

Price per gown:	$1	$2	$3	$4	$5	$6
Quantity of Gowns Demanded per Day:	60	30	20	15	12	10