ABSTRACT
How do we go from one buyer to many buyers? Recall that each buyer has a level of willingness to outlay. Embedded within the outlay is the price charged by the firm. Economists are usually only interested in the buyer’s willingness to pay. For a normal good or service, there would be less people willing to pay a higher price. Hence, if you accumulate the number of people willing to pay for a good or service at each price point, the number of people willing to pay at that price point (demand) should increase with a reduction in price. For example, in Figure 5.1(a), there might be just one buyer willing to buy at P1. If the firm lowers its price to P2, there might be another buyer so there would be two buyers who would buy at P2. If you take it to the limit (i.e. there exist dots that are very close together), it becomes a continuous line, which makes up a downward sloping demand function. This is of course the most simplistic characterisation of demand for most consumer goods and services. In reality, for different goods and services, demand functions may or may not exist, and even if they do, may not be downward sloping, linear or continuous. However, for our purposes here, I will stay with the traditional and simplest form – that of the downward sloping demand function.
