The Demand Curve

1. Because it requires ability as well as willingness, this is effective demand, which is what markets actually respond to.
2. On the diagram price is on the vertical axis and quantity demanded on the horizontal axis, and the curve slopes down from left to right.

Movements Along the Curve

1. A rise in own price is shown as moving up and to the left along the same curve to a smaller quantity, and a fall as moving down and to the right.

Shifts of the Curve

1. A change in any condition of demand shifts the whole curve: a favourable change shifts it right and an unfavourable change shifts it left.
   1. A rightward shift means more is demanded at every price and is drawn as the whole curve moving right to a new labelled position.

Conditions of Demand

1. The conditions of demand can be recalled as PIRATES: population, real income, related goods (the prices of substitutes and complements), advertising, tastes and fashion, expectations of future prices, and seasonal factors, with interest rates also relevant for goods bought on credit.
   1. For a normal good, such as restaurant meals, higher real income shifts demand right, while for an inferior good, such as supermarket value ranges or bus travel, higher income shifts demand left.
   2. A dearer substitute shifts demand right and a dearer complement shifts it left, so cheaper consoles raise demand for games.

Diminishing Marginal Utility

$$M{U}_n=T{U}_n-T{U}_{n-1}$$

1. Because each extra unit is worth less, a buyer takes more only at a lower price, which is why diminishing marginal utility helps explain the downward-sloping demand curve.
   1. The first glass of water on a hot day gives the most satisfaction, the second adds less and the third less again.
   2. Total utility keeps rising while marginal utility is positive and only falls once marginal utility turns negative.

Does demand always slope downwards?

1. It holds for almost every good because of the law of demand and diminishing marginal utility: at a lower price each extra unit is worth the smaller outlay.
2. But for Veblen goods, such as a Birkin bag or a designer watch, a higher price signals status, so demand can rise as price rises.
3. But for a Giffen good, a staple such as rice for very poor households, a price rise can force buyers to consume even more of it as they cut back on costlier foods.
4. On balance, the curve slopes down in almost every real market; the exceptions are rare and depend on the good being a status symbol or a dominant staple.