A consumer demand curve is a graph that shows the quantity consumers demand, or are willing to buy, of a product at various prices. You can use a demand curve to visually analyze the effects of price changes for your small business’s products and services. The graph displays prices on the vertical axis and quantities on the horizontal axis. The relationship between the two is represented by a single line in the middle. This line always slopes down toward the right due to the law of demand in economics, which states that the quantity demanded increases when the price declines and decreases when the price rises.
List the prices you could potentially charge for your products in a column on a regular sheet of paper. Write the quantity you estimate your customers would demand at each price in an adjacent column. The quantity demanded can be for any period, such as a week or month. This data represents your demand schedule and is used to create your demand curve. For example, assume your small business’s customers demand 750, 2,250, 3,500, 4,500 and 5,250 units of your products every week at $5, $4, $3, $2 and $1, respectively. Write the prices in one column and the quantities in another.
Draw a horizontal line that extends the length of your graph paper three lines from the bottom of the page. This is the x-axis. Write “Quantity” below the line.
Draw a vertical line from the top to the bottom of the graph paper three lines from the left on the page. This is the y-axis. Write “Price” to the left of the line.
Write “0” below the intersection of the x- and y-axes.
Write a range of quantities along the x-axis that correspond to the quantities in your demand schedule. List one quantity on each vertical line so that each line increases from left to right in equal increments. The increments should be large enough so you fit your entire quantity range along the x-axis but small enough for the graph to show sufficient detail. In this example, use increments of 250. Write “250” on the first line, write “500” on the second and continue to increase each line by 250 until you reach 5,250.
Write a range of prices along the y-axis based on the prices in your demand schedule. Write one price per horizontal line, with each line increasing from bottom to top by an equal interval that fits your specific price range. In this example, use 25-cent intervals. Write “$0.25” on the first line, write “$0.50” on the second and continue to increase each line by 25 cents until you reach $5.
Draw a point at the intersection of each price and quantity listed in your demand schedule. In this example, draw a point at the intersection of $5 and 750 and at each of the other four intersections.
Draw a line between each point to complete the demand curve. Concluding the example, draw a line between the point at $5 and 750 and the point at $4 and 2,250. Connect each of the remaining points to finish your demand curve.
