A curve that relates the quantity demanded of a particular good in a market to different price levels.
(Dwayne Benjamin, Toronto PPG 1002H)
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.
Prepared by Ian Clark and Ben Eisen from Dwayne Benjamin's class presentation.