Here is a text art diagram to illustrate how a fall in the price of wine affects demand for wine:
____________________
/ \
/ \
/ demand curve \
/ \
/ D \
/ \
/ \
/__________________________________________________________
| | | |
| higher original lower |
| demand demand demand |
| D0 D1 |
P0 P P1
As the above diagram shows:
- The original demand curve for wine is labeled D0, corresponding to an original price of P0.
- When the price of wine falls from P0 to P1, the demand curve shifts rightward to D1, showing an increase in demand.
- The downward sloping demand curve indicates an inverse relationship between price and quantity demanded: as price falls, demand rises.
- This is due to the law of demand, which states that other factors held constant, consumers will buy more of a product at lower prices and less at higher prices.
- Thus, a fall in the price of wine from P0 to P1 results in a higher demand for wine, shifting the demand curve from D0 to D1.