No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Three: Demand 77 IT’S A WRAP! Figure 3.9 summarizes what we’ve learned about how demand works. Demand curves always slope downward (it’s a very convenient memory tool to recognize that the D emand curve always slopes D own). Movement along a demand curve is ONLY due to changes in price; we speak of the “quantity demanded” changing when price changes. When demand changes ( any change besides a change in price, such as income, price of substitutes, etc.), the entire demand curve shifts to the right or left, like the blue and orange curves in Figure 3.9 . We now have a new tool in our tool bag: the concept of demand. But in a way, this is only one-half of the equation. After all, we need supply and demand to be able to understand markets and the world we live in. The economist Alfred Marshall used the analogy of a pair of scissors to describe how supply and demand interact—as both forces operate to determine market prices. Nevertheless, it is appropriate for us to begin with demand, because every demander is also potentially a supplier, as we’ll see in the next chapter. The good news is that supply and demand is not like this. P ($) Q (#) Q D Q D D D D Figure 3.9, Change in Demand & Change in Quantity Demanded (Q D ). A change in demand, such as when income rises or falls, will result in the demand curve shifting right or left, from the red curve above to either the orange curve (income falling) or the blue curve (income rising). When prices changes, the quantity demanded will change with movement along the curve. When prices rise, quantity demanded will fall with movement along the demand curve up and to the left. When prices fall, the quantity demanded will increase, with movement along the curve down and to the right.