Demand curves allow businesses to analyze the buying preferences of consumers. Demand curves are downward sloping lines presented on a graph with two axes. The vertical axis, price, represents the range of prices a business might charge for a product, such as shoes. The horizontal axis, quantity demanded, represents how many products a market's consumers would purchase.
The demand curve for shoes slopes downward because more buyers will buy more shoes at low prices than they will at high prices. For example, suppose a shoe store charges an average price of $20 for a pair of shoes. Consumers in that store's market might buy 100 pairs of shoes per week at that price. But if the store raised its average price to $30, consumers would buy fewer shoes. In other words, increasing the price of the shoes causes a leftward movement along the demand curve, from a lower point on the downward sloping curve to a higher point.
A rightward movement along the demand curve would occur if the shoe store lowered its average price while keeping everything else constant. For example, if consumers will buy 100 pairs of shoes per week at a price point of $20, then they might buy 140 pairs of shoes at a price point of $10. Lowering the price thus causes a rightward movement along the demand curve, from a higher point to a lower point.
A movement along the curve -- that is, from one point on the curve to another point -- occurs only after a price change. The curve itself, however, remains in place. The only way the curve moves is if there is a significant shift in consumer demand. For example, when Michael Jordan began to endorse Nike products, consumer demand for the sneakers increased. This meant that at every price point consumers demanded more Nike shoes than they did before the endorsement. Thus, the entire demand curve shifted rightward to represent the new status of consumer buying preferences. In contrast, a decrease in demand would shift the curve leftward.
Demand curves can help businesses predict consumer reaction to upcoming changes in market strategy. For example, a shoe store owner might draw a demand curve using historical consumer buying data in a particular market. The store owner then could move along the demand curve to predict how many shoes she would sell at a series of price points. This would allow her to, for instance, design an effective mega-sale that clears out stock to make way for new items while still keeping prices high enough to ensure some profitability.
