Demand Curve

A bivariate 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 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 amount more, 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 shows 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 taken in distinguishing between using the word 'demand' in the sense of a particular rate at a particular price and using it in the sense of the whole range of rates at a range of prices (a point on the demand curve versus the entire curve itself). 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 being used in two different senses.

Demand for Health 91

Let the amount of something demanded be a function of its relative price and buyers' incomes. The demand curve is a two-dimensional representation of this function in which responses to changes in price are seen as movements along the demand curve and responses to changes in 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; 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, the effectiveness and likely cost of treatments; the (strong?) possibility that the 'rationality' assumptions underlying utility theory do not apply when someone is worried, 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. See Law of Demand.

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