Demand is the relationship between market price and desired quantity demanded, and Supply is the relationship between market price and desired quantity supplied. Demand and supply relationships can be expressed in equations, tables, or graphically. We will use all three of these methods of expressing demand and supply relationships, but we will primarily focus on graphical representation throughout this text.
What kind of relationship do we expect between desired quantity demanded and market price? Will desired quantity demanded vary in a systematic way with market price? We hope so, because if it doesn't, any sort of analysis will be impossible. Will the relationship be direct (price and desired quantity demanded moving in the same direction) or inverse (price and desired quantity demanded moving in opposite directions)? In other words, will higher market prices lead to increased or decreased desired quantity demanded?
It's fairly easy to answer this question. Would you go to the movies more often or less often if the price of movies doubled? Would you buy more or fewer DVDs if the price of DVDs fell by 75 percent? If you're like most people, you would say that you would go to fewer movies and buy more DVDs. We expect that higher market prices will lead to smaller desired quantities demanded and lower market prices will lead to greater desired quantities demanded. The demand relationship is an inverse or negative relationship, with price and desired quantity demanded moving in opposite directions.
Demand relationships, or curves, for specific goods and services exist for individuals or entire markets. Usually, we will be interested in the market demand curve for a particular good or service. We may use "market" to refer to the entire world market, or to the demand for a single country, or even the demand for a small town. Economists, and this text, always try to be clear if we mean the demand curve for an individual, or a market and will also be clear about what market we mean. Nevertheless, be careful when doing demand and supply analysis that you are clear about which is the relevant market under consideration.