Graphing a Demand Curve from a Demand Schedule, and How to Read a Demand Graph

The demand curve is the line in a supply and demand graph that shows consumer behavior: at a given market price, how many units will consumers purchase? (Or, reading the chart in the opposite direction, how much is the marginal buyer willing to pay for the nth unit?)

Key topics in the video include:
- Definition of the demand curve
- Graphing a demand curve, starting from data in a demand schedule
- Why the demand curve slopes downward
- Two ways to read a demand curve: horizontal and vertical (and how each helps us understand consumer preferences and behavior in the market)

LEARNERS: Test your knowledge of this topic with a set of practice questions: https://mru.io/0k0

TEACHERS: This topic is covered in MRU’s free Supply, Demand, and Equilibrium Unit Plan–7 days of lesson plans including videos, interactive tools, and classroom activities. These resources are always available to teachers for FREE at MRU.org: https://mru.io/8e7173

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- [Tyler] In this video,

we're going to dive deeper
into the demand curve

by building one together

and then learning
two different ways

to read a demand curve.

So let's start with the definition
of a demand curve.

A demand curve is a function

that shows the quantity demanded
at different market prices.

That's a bit mysterious,

so let's take an example
of the market for oil

and then build
a demand curve together.

Here's a hypothetical table of data

that shows the amount of oil bought
at different market prices.

Suppose that at a price
of $55 per barrel,

the quantity of oil demanded
would be 5 million barrels a day.

At a lower price,
say $20 per barrel,

the quantity of oil demanded
is going to be higher,

say 25 million barrels a day.

And at an even lower price --
$5 per barrel --

the quantity of oil demanded
would be 50 million barrels a day.

Let's convert these into a graph

with the price of oil
on the vertical axis

and the quantity of oil demanded
on the horizontal axis.

We can now graph
our three points...

and connect them with a line --

that's the demand curve for oil.

It shows us the quantity demanded

at each price.

Immediately, we see a key feature
of the demand curve,

which is that it slopes downward.

At a lower price,

the quantity demanded is greater --

that makes intuitive sense.

If the price is lower,
you'll buy more.

Now let's discuss the two ways
to read a demand curve.

We'll start with
the horizontal method.

We begin by reading the price,
say $55 per barrel --

then read horizontally
over to the demand curve,

and then down to find
that at that price,

buyers are willing
and able to purchase

5 million barrels of oil per day.

At a price of $20 per barrel,

buyers are willing
and able to purchase

25 million barrels of oil.

At a price of $5 per barrel,

buyers are willing
and able to purchase

50 million barrels of oil.

The second way of reading
the demand curve,

the vertical method,

begins at the bottom
and works its way up.

It tells us the value,
or the maximum price,

that buyers are willing to pay
for a particular barrel of oil.

We pick a quantity
along the x-axis,

say the 5 millionth barrel of oil,

and then read up to find the value
of that barrel of oil --

or, in other words,

the maximum amount that buyers
are willing to pay for that barrel,

which is $55.

How about the 25 millionth
barrel of oil?

We can read up
from the horizontal axis

and then over to see

that the maximum
buyers are willing to pay

is $20 for that barrel of oil.

Both ways of reading
the demand curve are useful

for solving different kinds
of problems.

The horizontal reading
tells us the quantity demanded

at a given price.

The vertical method tells us

how much buyers value
a particular barrel of oil.

The demand curve
is a fundamental tool in economics,

so please be sure to practice
building it and reading it

until you've mastered it.

- [Narrator] If you're a teacher,

you should check out our supply
and demand unit plan

that incorporates this video.

If you're a learner,
make sure this video sticks

by answering
a few quick practice questions.

Or, if you're ready
for more microeconomics,

click for the next video.

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