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Demand Curve

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PPGPortal > Home > Concept Dictionary > D, E > Demand Curve
 

Demand Curve 

A curve that relates the quantity demanded of a particular good in a market to different price levels.

(Dwayne Benjamin, Toronto PPG 1002H)  

 

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A simple example can be seen in the demand for apartments.

  • One way to derive the demand curve: imagine that every potential renter has a reservation price for a nearby apartment.
  • The reservation price is the highest price that an individual is willing to pay to purchase the good.
  • For example, assume that only one person is willing to pay $500 per month for an apartment.
  • Assume similarly, that a second person is willing to rent if the price is no greater than $490.
  • And so on, with the number of potential renters increasing as the monthly rent falls.

  On the demand curve

  • Note that for p*, only those for whom the price is lower than their reservation price will be interested in renting.
  • More generally, we can draw a smoother looking demand curve for “close” apartments.
  • For any p*, the demand curve gives us the number of people willing to rent an apartment at that rental rate.

 

References

 

Prepared by Ian Clark and Ben Eisen from Dwayne Benjamin's class presentation.

     

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