Economics, 3rd Edition

Deriving the Demand Curve

The upper graph shows that when the 

price of cola falls the consumer’s optimum 

changes and these changes are shown as 

the price-consumption curve. The demand 

curve in the lower graph reflects the 

relationship between the price of pizza and 

the quantity demanded.

D i i

th D

d

FIGURE 5.16

Quantity

of cola

Price of

pizza

Quantity

of pizza

Quantity

of pizza

P

1

P

2

P

3

P

4

P

4

Q

5

D

Q

4

Q

3

Q

2

Q

1

Q

5

Q

4

Q

3

Q

2

Q

1

I

1

I

2

BC

3

BC

4

BC

5

I

3

I

4

I

5

Price-consumption curve

BC

2

BC

1

---

122  PART 2  SUPPLY AND DEMAND: HOW MARKETS WORK

Economists use the term 

Giffen good

 to describe a good that violates the law of demand. (The term is 

named after the British economist Robert Giffen, who first noted this possibility.) In this example, potatoes 

are a Giffen good. Giffen goods are inferior goods for which the income effect dominates the substitution 

effect. Therefore, they have demand curves that slope upward.

A Giffen Good

In this example, when the price 

of potatoes rises, the consumer’s 

optimum shifts from point C to 

point E. In this case, the consumer 

responds to a higher price of 

potatoes by buying less meat 

and more potatoes.