The concept of demand is one of the most important
building blocks of economic analysis. When economists refer
to demand, they usually have in mind not just a single quantity
demanded, but what is called a demand curve. A demand curve
traces the quantity of a good or service that is demanded at
successively different prices.
The most famous law in economics is the law of demand.
This law states that when the price of a good rises, the amount
demanded falls, and when the price falls, the amount demanded
rises.
It is not just price that affects the quantity demanded.
Income affects it too. As real income rises, people buy more of
some goods (which economists call normal goods) and less of
what are called inferior goods. Urban mass transit and railroad
transportation are classic examples of inferior goods. The usage of
both of these modes of travel declined dramatically in the US as
postwar incomes were rising and more people could afford
automobiles.
Another influence on demand is the price of substitutes.
When the price of Toyota Tercels rises, all else being equal,
demand for Tercels falls and demand for Nissan Sentras, a
substitute, rises. Also important is the price of complements, or
goods that are used together. When the price of gasoline rises,
the demand for cars falls.
