Markets in Action: Introduction to Demand Curves I A Level and IB Economics
Summary
TLDRThis video explores the demand curve for strawberries, focusing on how price changes affect demand. It explains that price changes cause movements along the demand curve, while other factors like the price of substitutes, complements, income changes, or successful advertising can shift the curve. The video also discusses why demand curves are often drawn as straight lines in economic models, although real-world demand tends to be non-linear, with varying sensitivity to price changes at different price points. Future videos will cover supply curves.
Takeaways
- 📉 There is an inverse relationship between the price of strawberries and the quantity demanded by consumers, meaning higher prices lead to lower demand and vice versa.
- 📈 A decrease in price results in an expansion of demand, while an increase in price causes a contraction of demand along the same demand curve.
- 📝 A change in the price of strawberries leads to movement along the demand curve, not a shift of the curve itself.
- ↔️ Shifts in the demand curve occur due to factors other than the product's price, such as changes in consumer preferences or external market conditions.
- 🍒 A rise in the price of a substitute for strawberries, such as cherries, causes an outward shift in the demand curve for strawberries.
- 🍦 An increase in the price of a complement, like ice cream, leads to an inward shift in the demand curve for strawberries, as fewer people buy the complementary products.
- 💰 A decrease in real disposable income results in an inward shift in demand if strawberries are considered a normal good.
- 📢 Successful advertising campaigns that promote the health benefits of strawberries cause an outward shift in the demand curve, as more people want to buy them at any given price.
- 🏷️ A price promotion by supermarkets leads to movement along the demand curve, not a shift, as it is a change in the product's price.
- 🔄 Although demand curves are typically drawn as straight lines for simplicity, in reality, the demand for a product like strawberries is more likely to be non-linear, with different levels of responsiveness at different price points.
Q & A
What is the relationship between the market price of strawberries and the quantity demanded?
-The relationship between the market price of strawberries and the quantity demanded is typically inverse. As the price increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.
What happens when the price of strawberries increases from £2 to £2.50 per kilogram?
-When the price increases from £2 to £2.50 per kilogram, there is a contraction of demand. Consumers might reduce their demand for strawberries or switch to alternative products.
How does a decrease in the price of strawberries affect demand?
-A decrease in the price of strawberries, for example from £2 to £1.50 per kilogram, acts as an incentive for consumers to increase their demand, leading to an expansion of demand.
What is the difference between a movement along the demand curve and a shift in the demand curve?
-A movement along the demand curve occurs when the price of the product itself changes. A shift in the demand curve happens due to changes in factors other than the product’s price, such as consumer income or preferences.
What causes an outward shift in the demand curve for strawberries?
-An outward shift in the demand curve for strawberries occurs when there is an increase in demand at the same price level. This can be due to factors like successful advertising or a rise in the price of substitute goods.
What could cause an inward shift of the demand curve for strawberries?
-An inward shift of the demand curve could be caused by factors such as a fall in real disposable income, or a rise in the price of complementary goods, like ice cream, making strawberries less desirable.
How does a rise in the price of a substitute good, like cherries, affect the demand for strawberries?
-A rise in the price of a substitute good, such as cherries, would lead to an outward shift in the demand curve for strawberries as consumers might switch from cherries to strawberries.
What effect would a successful advertising campaign promoting strawberries have on demand?
-A successful advertising campaign would likely cause an outward shift in the demand curve for strawberries, as consumers perceive increased benefits and more people enter the market to purchase them.
What happens to the demand curve when supermarkets lower the price of strawberries during a promotion?
-A price promotion by supermarkets causes a movement along the demand curve, leading to an increase in quantity traded but does not shift the demand curve itself.
Why do economists often draw demand curves as straight lines, and is this realistic?
-Economists draw demand curves as straight lines to simplify analysis. However, in reality, demand curves are often non-linear, as the responsiveness of demand to price changes can vary at different price points.
Outlines
📈 Introduction to Demand Curves for Strawberries
This paragraph introduces the video, which explores demand curves, specifically for strawberries, within the framework of supply and demand economics. It explains that the market price of strawberries is represented on the y-axis, while the quantity traded is on the x-axis. The focus is on the inverse relationship between price and quantity demanded, using examples to illustrate how price changes affect consumer behavior, with higher prices leading to reduced demand and lower prices encouraging an increase in purchases.
🍓 Movement Along the Demand Curve for Strawberries
The paragraph explains how changes in the price of strawberries lead to movements along the demand curve. It emphasizes that when the price of strawberries changes, consumers adjust their purchasing decisions, either buying more or less depending on price fluctuations. A reduction in price results in an 'extension of demand,' where more consumers enter the market, while a price increase leads to a 'contraction of demand,' where some consumers reduce their purchases or switch to alternatives.
📉 Shifts in the Demand Curve
Here, the concept of shifts in the demand curve is introduced. Unlike price changes, which cause movements along the curve, other factors can shift the entire demand curve. An outward shift (increase in demand) or inward shift (decrease in demand) occurs when external conditions change, such as consumer preferences or market trends. For instance, a rise in demand at the same price level could benefit strawberry growers by allowing them to sell more at a stable price or at a higher price.
⚙️ Factors Causing Shifts in the Demand Curve
This section outlines five specific market changes that could cause shifts in the demand curve for strawberries. For example, an increase in the price of a substitute like cherries leads to an outward shift in demand for strawberries. Conversely, a price increase in a complementary product, like ice cream, could cause an inward shift. Other factors include changes in real disposable income, successful advertising campaigns promoting strawberries, and supermarket price promotions, which are analyzed to show how they impact demand.
🧠 Summary of Movements and Shifts in the Demand Curve
This paragraph summarizes the key points about demand curve dynamics. It clarifies that a price change causes movement along the demand curve, while changes in factors other than price shift the curve itself. The example of a price promotion demonstrates how lowering the price of strawberries leads to a higher quantity traded without shifting the demand curve. The paragraph emphasizes the importance of distinguishing between movement along the curve and shifts in the curve when analyzing market behavior.
📊 Non-Linear Demand Curves and Consumer Sensitivity
This final section discusses why demand curves are often drawn as straight lines for simplicity, although in reality, they are likely non-linear. The sensitivity of consumer demand to price changes can vary at different price points, with larger reactions to price increases above a certain level and smaller reactions when prices drop significantly. The example of strawberry prices demonstrates how different pricing strategies impact consumer behavior, leading to varying levels of responsiveness depending on the price range.
Mindmap
Keywords
💡Demand curve
💡Price elasticity
💡Outward shift
💡Inward shift
💡Substitute goods
💡Complementary goods
💡Disposable income
💡Advertising impact
💡Movement along the curve
💡Non-linear demand curve
Highlights
Introduction to the basic economics of supply and demand using the example of strawberries.
Inverse relationship between the market price of strawberries and the quantity demanded by consumers.
Price increase leads to a contraction of demand, while a price decrease leads to an expansion of demand.
A change in the price of strawberries causes movement along the demand curve.
Shift in demand curve occurs due to factors other than price changes, such as consumer preferences or income.
An outward shift in demand means more strawberries are demanded at the same price.
An inward shift in demand means less strawberries are demanded at the same price.
Examples of factors affecting demand: rise in the price of substitutes leads to outward shift in demand for strawberries.
Rising price of complementary goods like ice cream causes an inward shift in demand for strawberries.
A fall in real disposable income decreases demand for strawberries (inward shift).
Successful advertising promoting strawberries as a health food causes an outward shift in demand.
A price promotion (lowering price) does not shift the demand curve but causes movement along it.
Change in the price of strawberries only results in movement along the demand curve, not a shift.
The shape of the demand curve is often drawn as a straight line but can be non-linear depending on price sensitivity.
Non-linear demand curves indicate varying consumer responsiveness to price changes at different price points.
Transcripts
okay hi there welcome to the third in
our suite of videos looking at the
market for strawberries uh providing an
introduction to the to the basic
economics of supply and demand
in this third video we're going to look
at demand curves and think a little bit
about the nature of the demand curve for
a product in this case strawberries
and how the curve might shift over time
we're working in an xy space with the
market price of strawberries on the
y-axis and the quantity traded of
strawberries in a kilos traded per hour
per day for example
on the x-axis
and we asked a simple question to start
with what relationship would you expect
between the market price of strawberries
and the level of demand for them the
quantity demanded at a given price from
consumers from purchases of strawberries
well normally normally we draw the
relationship as an inverse one
between price and quantity demanded in
other words there is an inverse
relationship between how much people
have to pay and the quantity they're
willing and able to buy
so if we give a given price for example
let's say two pounds per kilogram uh the
quantity sold could be q1 in a given
time period if the price was to go up to
2 pound 50 per kilogram other things
being the same
we would expect there to be a
contraction of demand we'd expect some
consumers
to cut back on their demand for
strawberries perhaps they might switch
to an alternative product
equally if the price came down let's say
to 1.50 per kilogram
then that price reduction acts as an
incentive
for consumers to consider increasing
well we call it that's an extension or
expansion of demand moving down the
demand curve
the price cut brings more consumers into
the market
now the key point for your notes and for
revision
is that a change in the market price of
strawberries themselves changing the
price of the product itself
causes either movement up or down the
demand curve it causes a movement along
the demand curve for strawberries this
is quite important to get your head
around initially
if the price of the product itself
changes
we move along the demand curve for a
particular product
however we also know that there can be a
change in demand for strawberries that
that position of the demand curve in the
xy space there
can change if we take a given price of 2
pounds per kilogram
it could be the case that for the same
price there's a higher level of demand
an increase in demand or we call that an
outward shift and that means for that
same price of two pounds per kilogram
then there's going to be an increase in
quantity demanded q4 we've done it
numerically you'll see why in a second
but
an increase in
demand means that quantity goes up from
q1 to q4 at the same
price
something must have happened in the
market to cause that
it's good news for strawberry growers
they can now sell more
at
uh that price or they can
sell the existing quantity q1 at a
higher price in the market
equally there could be a fall in demand
an inward shift of demand meaning that
less is bought
at the same price demand conditions
might have changed such that
uh there are fewer consumers willing and
able to buy strawberries in the market
and again we'll go through some examples
in the second little exercise
to take you through that
so a change in a change in factors other
than the price of the product themselves
will bring about a shift in the demand
curve that's really quite an important
point
a leftward movement is a decrease in
demand an inward shift of demand
and outward shift is is on the other the
other side
what i've done is just make this diagram
slightly smaller so d1 to d2 is an
outward shift d1 to d3 is an inward
shift of demand for the same price level
okay here are five
factors
uh five changes in the market and your
little task here is to think well what's
going to happen to the demand curve for
strawberries in this situation are we
going to go from d1 to d2
and outward shift
what are we going to go from d1 to d3 an
inward shift of demand
press the pause button have a go work
your way through the five examples
and we'll go through them together
when you're ready
so we have five changes in the market uh
there's going to be a shift in demand or
perhaps a movement along the curve
perhaps there might be a movement along
the demarco let's see
what you think first one the rise in the
price of a substitute for strawberries
perhaps some increase in the price of
raspberry or blueberries or something or
some other or cherries or some other
substitute to strawberries what's going
to happen to the demarco strawberry as
well
there's going to be an outward shift
because the price of strawberries now is
lower relative to the substitutes
and we'd expect some consumers to shift
their demand away from the substitutes
towards strawberries so if the price of
cherries goes up for example people
might decide to buy fewer cherries in
the supermarket
and buy opponents of strawberries
instead
what about a rising the price of a
complement to strawberries well this
would presumably cause an inward shift
to d3 because if people are buying for
example if ice cream becomes more
expensive
people are buying less ice cream and
therefore they may well buy less
strawberries
as a result
what about the third one the fall in
real
and there was after inflation real
disposable income for households well
we're going to assume here that
strawberries are a normal good that
people tend to buy more when they're
better off
so fall in incomes
maybe a rise in tax or rising inflation
or fall in real disposable incomes
would cause an inward shift from d1 to
d3
successful advertising campaign
promoting strawberries as a health food
that should cause
an outward shift i would think from d1
to d2 because people
perhaps the perceived utility the
perceived satisfaction or health benefit
has gone up and therefore more people in
the market at any given price p1 at any
given price more people in the market
looking to buy
now the last one supermarkets lower the
price of strawberries in a price
promotion so
you walk into the supermarket and you
find that strawberries
are on promotion has it been a discount
to the usual price
which way is the curve going to shift
d1 to d2 or d1 to d3
well the answer is
it's not going to shift at all a change
in the price of the product itself so
price discount
causes a movement along the demand curve
so we move down d1 to a higher level of
quantity traded
here's a quick summary any change in the
conditions of demand a factor other than
the price of the product itself
will cause a shift in the position of
the demand curve a change in the price
of the product will cause a movement
along the demarco
just want to finish this little video
this
third session by thinking about
the nature of the demand curve
oftentimes students do say this you know
why are we drawing a curve as a straight
line
why why do we draw demand curves as a
linear function of price well we
normally do that a little a little bit
helps to simplify
the analysis but i think we know that
the demand for a product
other factors remaining the same
incomes prices of complements and
substitutes for example the demand for
quality is unlikely to be a straight
line it's likely to be non-linear the
responsiveness of demand to a change in
price may well
be different at different price points
in the market
here's a possibility um in terms of the
shape of demand it's not necessarily
inevitable but i've drawn this as a
non-linear function
yes the quantity traded goes up as the
price goes down but you can see the the
responsiveness varies by price
take a price p1 if we cut the price from
p1 to
uh p2 we get a we get an expansion down
that demand curve and it looks like
consumers aren't particularly sensitive
to the price there that few people buy
more
but equally if we're to raise the price
above p1 to p3
price rise is above a certain point this
is where consumers really do start to
cut back on demand there's quite a
responsive effect
perhaps that is enough that's the
trigger
for them to move to alternative products
and equally if strawberry prices became
very low in the market extremely low
then if price fell from p2 to p4 we
might get another very positive response
there in terms of the quantity traded
so
in your exams in your economics you
would normally draw demand curves in
inverted commas as a straight line but
be aware that there's it's unlikely to
be the case it's nearly always the
non-linear relationship between price
and demand
in the next video we will turn our
attention to
the nature of and position of supply
curves
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