The Law of Demand

Think about why you buy less coffee when the price jumps from $3 to $6 a cup. Two things happen. First, you feel poorer in real terms, since your money now buys less coffee than before — that's the income effect. Second, coffee now costs more relative to tea or energy drinks, so you swap toward those instead — that's the substitution effect. Both effects push the same direction: higher price, lower quantity demanded. That inverse relationship, holding income, tastes, and other prices fixed, is the law of demand.

A demand schedule is just a table pairing each price with the quantity demanded at that price. Plot those pairs on a graph with price on the vertical axis and quantity on the horizontal axis, connect them, and you get a downward sloping demand curve. To build market demand from individual buyers, add quantities horizontally at each price: if Ana demands 5 units at $2 and Ben demands 3 units at $2, market quantity demanded at $2 is 8. Do this at every price and you trace out the market demand curve.

This topic sets up everything else in the unit. Once you can read and build a demand curve, you're ready to pair it with supply, find equilibrium, and see how shifts versus movements along the curve explain price changes. The curve only plots effective demand — quantity buyers can and will actually pay for — which matters once you start reasoning about surplus, taxes, and price controls later in the unit.