to one of the entries in the table. The curve that connects these points is a demand
curve. A demand curve is a graphical representation of the demand schedule,
another way of showing the relationship between the quantity demanded and price.
Note that the demand curve shown in Figure 3-1 slopes downward. This
reflects the general proposition that a higher price reduces the quantity demanded.
For example, jeans-makers know that they will sell fewer pairs when the price
of a pair of jeans is higher, reflecting a $2 price for a pound of cotton, compared
to the number they will sell when the price of a pair is lower, reflecting a price of
only $1 for a pound of cotton. Similarly, someone who buys a pair of cotton jeans
when its price is relatively low will switch to synthetic or linen when the price of
cotton jeans is relatively high. So in the real world, demand curves almost always
do slope downward. (The exceptions are so rare that for practical purposes we
can ignore them.) Generally, the proposition that a higher price for a good, other
things equal, leads people to demand a smaller quantity of that good is so reliable
that economists are willing to call it a “law”—the law of demand.
Shifts of the Demand Curve
Although cotton prices in 2010 were higher than they had been in 2007, total
world consumption of cotton was higher in 2010. How can we reconcile this
fact with the law of demand, which says that a higher price reduces the quantity
demanded, other things equal?
The answer lies in the crucial phrase other things equal. In this case, other
things weren’t equal: the world had changed between 2007 and 2010, in ways
that increased the quantity of cotton demanded at any given price. For one
thing, the world’s population, and therefore the number of potential cotton
clothing wearers, increased. In addition, the growing popularity of cotton
clothing, as well as higher incomes in countries like China that allowed people
to buy more clothing than before, led to an increase in the quantity of cotton
demanded at any given price. Figure 3-2 illustrates this phenomenon using the
For a real-world illustration of the law of demand,
consider how gasoline consumption varies according
to the prices consumers pay at the pump. Because
of high taxes, gasoline and diesel fuel are more than
twice as expensive in most European countries as in
the United States. According to the law of demand,
this should lead Europeans to buy less gasoline than
Americans—and they do. As you can see from the
figure, per person, Europeans consume less than half
as much fuel as Americans, mainly because they drive
smaller cars with better mileage.
Prices aren’t the only factor affecting fuel consumption,
but they’re probably the main cause of the difference
between European and American fuel consumption
per person.
PAY MORE, PUMP LESS
0.2 0.4 0.6 0.8 1.0 1.2 1.4
$7
6
5
4
3
2
1
Price of
gasoline
(per gallon)
Consumption of gasoline
(gallons per day per capita)
0
Italy
France
Canada
Japan
Germany
Spain
United Kingdom
United States
Source: U.S. Energy Information Administration, 2009.
A demand