Modern economics assumes that the supply of goods and services will naturally increase to meet the level of demand in the market. That is , producers will produce a given quantity at any price within a profitable range.

At some price, the level of production will will meet that demands of consumers at that price.

We use the supply and demand curves to illustrate this principle.

What is a Demand Curve?

The demand curve graphically showcases the relationship between the demand for a specific product or service and its price for a certain time period. In the graph, the price of the good or service is represented on the vertical side, and the quantity demanded on the horizontal side.

The demand curve revolves around the law of demand, and has a downward movement from left to right. This means that with the increase in the price of a good or service, the demand reduces, other things remaining constant.

Shifts in the Demand Curve

There are numerous factors unrelated to price that can lead to a shift in the demand curve – left or right. This means that at any given price, more or less of the good is demanded by consumer.

Examples of factors causing a shift in the demand curve include:

• changes in consumer income
• consumer tastes
• product obsolescence
• the presence of substitute or complementary goods,
• expectations about future market conditions and prices.

Exception to the demand curve

It is worth mentioning that the demand curve that establishes a relation between the quantity demanded and the price of goods follows some exceptions. That is, the demand for the good does not go down as the price increases.

One notable category of goods is the Giffen good.

When goods in this category rise in price it spurs additional or more demand. Likewise if the price goes down, there is less demand. This generally occurs because of individual perceptions of scarcity of a product which is absolutely necessary to the consumer.

As example, Giffen goods include staple food items such as rice, wheat, etc. that do not have any perfect replacements. They are essential to survival. As such, an increase in price accompanied by a decrease in supply leads to additional purchasing.

These demand for these goods is represented in an upward slope which goes in contrast to the demand curve that moves downward.