I understand the theories of supply and demand. I can’t figure out, however, why demand has a negative slope. If demand is lower when prices are higher and quantity is lower, then why is that the highest point in the demand curve? Likewise, if demand is highest when prices are low and quantity is high, why is that the lowest point on the demand curve?
In: Economics
The demand curve isn’t a continuum; it’s a series of fixed points that happen to form a downward curve. The key thing to remember with both the supply and demand curves is that they represent the quantity of a given good or service that people will *be willing to* buy or produce *at a given price*.
If the price for an item is very high, many firms are willing to produce it, which creates a large supply, you end up with a surplus due to low demand. As firms compete with one another to move product, prices come down and sellers gradually exit the market, which eventually settles into equilibrium, where firms produce roughly the exact amount of that item as people are willing to purchase at that price.
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