Skip to 0 minutes and 8 seconds Demand is a fundamental concept in economics. You may already be familiar with a demand curve. It looks like this. It is the curve that links prices on the vertical axis and the quantity demanded by consumers on the horizontal axis. How do you read this curve? Well, the demand curve shows the quantity of goods your consumers are willing or able to purchase for a given price. It doesn’t just apply to goods, it can also apply to services, like getting a haircut. Note that, for each good or service, there is a different demand curve.
Skip to 0 minutes and 48 seconds Let’s consider the example of beer. Like for most goods or services, the demand curve for
Skip to 0 minutes and 54 seconds beer has an inverse relationship: the higher the price, the less beer will be purchased, and there will be fewer beer drinkers in total. Let’s look closer. When the price goes up, some people will drink less beer, because they cannot afford as much at this price. Other people will stop drinking beer and they might switch to another beverage. Finally, some people, those who value beer more, or who are richer, will not change anything. They will still consume the same quantity.
Skip to 1 minute and 30 seconds The beauty of the demand curve for beer is that all those different people are represented. If the price goes up or down, we know what will happen. This is why this is such a useful concept.
Skip to 1 minute and 44 seconds It is true for all goods, but also for services: if the price of haircuts goes up, people will have their hair cut less often. or if they are adventurous, they will ask a family member to cut it.
Skip to 2 minutes and 1 second All this is also represented in the demand curve for haircuts.
Skip to 2 minutes and 8 seconds The magic of the demand curve is that the producers - the hairdresser or the owner of the brewery - only need to observe their customers for a short period to build the demand curve, or can even observe what is going on in similar businesses.
Skip to 2 minutes and 23 seconds In other words: know your demand curve! If you do, you are ready to do business successfully.
The beauty of the demand curve
Demand is at the core of pricing and revenue management techniques.
We have seen that price variations can have a great impact on the number of people willing to travel or, more generally, willing to buy a good or a service.
Let’s look at how this relationship between price and number of buyers can be represented in a very intuitive way, by the demand curve.
- Nathalie Lenoir is a professor of Economics at ENAC. She has an extensive knowledge of air transport economics. She created the first course on Revenue Management at ENAC and has been teaching about that topic and the economics of air transport for more than 15 years.
She founded and directed for many years the Economics and Econometrics Aviation Lab at ENAC. She now does research on airline economics with a focus on deregulation and networks.
Check the DOWNLOADS section to access a printable version of the slides included in this video.
© By ENAC - Nathalie Lenoir CC BY-NC-SA 3.0