demand curve

Definitions

Economics

  • noun a graph showing the quantities of a good that consumers would want to buy at different prices. The curve only takes prices into account, and not other factors such as income or consumer expectations. It is based on a demand schedule.

Health Economics

  • (written as Demand Curve)

    A two-variable geometrical representation of a demand function where the dependent variable is rate of consumption or use and the independent variable is price. In general, a demand curve shows both the maximum rate of demand for a good or service per unit of time at a variety of prices, and also the maximum price that will be paid for a small additional amount, ceteris paribus. Conventionally, the price variable is measured on the y axis and quantity on the x axis, even when quantity is the dependent variable. When price is the dependent variable, the demand curve is commonly referred to as a 'marginal valuation curve'. This is the interpretation showing the maximum amount someone is willing to pay for a small increment in the rate of consumption. Under particular conditions (for example, when the income-elasticity of demand is zero) the two curves coincide.

    Care needs to be exercised in distinguishing between using the word 'demand' in the sense of a particular rate at a particular price and in the sense of the whole range of rates at a range of prices (a point on the demand curve, cf. the entire curve). It evidently makes (logical) sense to say 'price rose and so demand fell' and also 'demand fell, so price fell', and a little thought reveals that the apparent paradox is resolved once it is seen that 'demand' is here being used in two different senses. Responses to changes in price are seen as movements along the demand curve and responses to changes in other determinants such as income are seen as shifts of the entire demand curve.

    In most situations in the health field 'demand' is not the demand by traders or dealers, who demand only in order to be able to supply or sell on; it is the demand by users either because it is a final good (as in the case of the demand for health) or an intermediate good or service (as is the case with the demand for health services).

    Some of the demand-side characteristics that ought always to be borne in mind when using demand curves in the context of health care, especially when making normative statements about welfare, are the following: uncertainty about the probable incidence of disease, its consequences for health and utility, the effectiveness and likely cost of treatments; the possibility that the rationality assumptions underlying utility theory do not apply when someone is worried, ill-informed, sick, incapacitated or in pain; the fact that there may well be external demands for the care of the person(s) whose demand is under consideration in addition to their own demand; and the fact that the price to which a demander is imagined to be responding may not be at all an accurate reflection of the marginal cost of providing the care in question. There are many empirical economic studies of demand behaviour that affects health.

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