This model illustrates the concept of demand. |
Generally, the amount of goods the consumer wants to purchase decreases as the price of the good increases (this relationship is known as the law of demand). This fact explains the negative slope of the demand function.
Demand is also affected by some factors that are not related to price. For example, an increase in the number of consumers results in a growth of market demand.
Graphically, the influence of factors that are not related to price also can be extrapolated from the demand curve. Usually, four non-price factors are taken into consideration: consumer income, preferences, prices of substitutes, and amount of consumers.
The price is plotted along the Y-axis and the quantity of goods is plotted along the X- axis. Change non-price factors and alter the amount of demand by moving the point of demand along the demand curve, and observe the ensuing changes.