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Supply & Demand

Supply & Demand

The Demand Curve

To get a better picture of demand, economist construct graphs. They try to find out how many people are willing to buy an item at various prices, and then plot that information on a graph like this.

Demand Curve 1

You should note a couple of things about demand curves: 1) price is always plotted along the vertical axis and quantity is always plotted on the horizontal axis, and 2) demand curves always slope downward from left to right.

By now you should understand the primary reason demand curves always slope downward from left to right—as price falls, demand increases. But a second economic principle plays a role as well. The law of diminishing marginal utility tells us that individual demand for a good will decrease each time that good is purchased or consumed.

Why It Matters Today

Another concert-related tale of demand.  A few years ago, Disney's Hannah Montana briefly became a craze to rival all crazes.  Preteen girls simply could not get enough of the character, played by Miley Cyrus, which sent demand for her live concerts shooting through the roof.

In 2007, one Indianapolis woman actually spent $13,000 for her family to get four tickets to a Hannah Montana show.  Now that's demand!

Hope it was a good show...

Sometimes, a Song Says it Better: Vienna, by Billy Joel

“You can get what you want” speaks to your demand curve.

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