Demand
Let's say Chad has a few pairs of white sneakers. Chad has a pair of Conserves for the gym, a pair of Air Force 1s that he likes to keep clean, and some white Adidas he wears to the bars and gets dirty.
If all white sneakers were $10 dollars, how many pairs of shoes would Chad buy? My guess is Chad would not mind buying 5 pairs. If white sneakers were $150 per pair he would probably not buy more than 2 pairs. If white sneakers were $200 he would only buy a pair.
There is clearly a relationship between the price of white sneakers and how many Chad buys.
We can create a Demand Schedule which shows the relationship between the price and the quantity demanded.
| Price of White Sneakers ($) | Quantity Demanded |
|---|---|
| $10 | 5 |
| $150 | 2 |
| $200 | 1 |
On our Y-axis is price. This price is the price of one unit of the good or service. On our X-axis is Quantity Demanded. This is the different quantities of white sneakers Chad could potentially want.
Using our Demand Schedule lets plot each point!
If a pair of white sneakers cost $10, Chad will want 5 pairs. This point is plotted as a red dot below.
If a pair of white sneakers cost $150, Chad will want 2 pairs. This point is plotted as a red dot below.
If a pair of white sneakers cost $200, Chad will want 1 pair. This point is plotted as a red dot below.
This results in the following linear relationship!
Notice how the Demand curve is downward sloping. This shows a very key economic concept: Law of Demand!
The Law of Demand states that holding everything constant, when the price of a product falls, the quantity demanded increases.