THE DEMAND CURVE: THE RELATIONSHIP BETWEEN PRICE AND QUANTITY DEMANDED
The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. As we will see, many things determine the quantity demanded of any good, but when analyzing how markets work. one determinant plays a central role the price of the good. If the price of ice cream rose to $20 per scoop, you would buy less ice cream. You might buy frozen yogurt instead. If the price of ice cream fell to $0.20 per scoop, you would buy more. Because the quantity demanded falls as the price rises and rises as the price falls, we say that the quantity demanded is negatively related to the price. This relationship between price and quantity demanded is true for most goods in the economy and, in fact, is so pervasive that economists call it the law of demand: Other things equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises The table in Figure 1 shows how many ice-cream cones Catherine buys each month at different pnces of ice cream. If ice cream is free, Catherine eats 12 cones per month. At $0.50 per cone, Catherine buys 10 cones each month. As the price rises further, she buys fewer and fewer cones. When the price reaches $3.00, Catherine doesn’t buy any ice cream at all. This table is a demand schedule, a table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else thar influences how much consumers of the good want to buy.
The graph in Figure 1 uses the numbers from the table to illustrate the law of demand. By convention. the price of ice cream is on the vertical axis, and the quantity of ice cream demanded is on the horizontal axis. The downward sloping line relating price and quantity demanded is called the demand curve.
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