Demand and supply schedules are constructed by making conjectures about the different amounts of a good buyers would prefer to buy at different prices, other things equal, and the different amounts of a good sellers would prefer to sell at different prices, other things equal.
The construction of a demand schedule begins with an actual purchase that a buyer makes. For example, yesterday I bought one package of 500 sheets of printer paper at Wal-Mart at a price of $12. We can conjecture that at a price high enough, I would have foregone purchasing paper and at a price low enough, I would have purchased more than one, or at least not less than one, package of paper. This construction reveals the law of demand. The price elasticity of demand refers to how sensitive the buyer’s purchase is to a change in price. Elastic demand means that the buyer changes the amount he purchases a lot in the face of a given change in price. Inelastic demand means that the buyer changes the amount he purchases a little in the face of the same change in price.
Take a look at David Gordon’s treatment of demand and supply in his book, An Introduction to Economic Reasoning:
For a more conventional treatment, see Bob Murphy’s in his book, Lessons for the Young Economist: