Macro 1.4 Demand - NEW!

Summary

This video delves into the fundamental economic concept of demand, explaining it as the willingness and ability to purchase goods or services. It clarifies the distinction between 'demand' and 'quantity demanded,' illustrating the law of demand where higher prices lead to lower quantities demanded and vice versa. The video also explores factors influencing demand changes, such as tastes, related goods' prices, income, buyer count, and future price expectations, using the mnemonic 'TRIBE.' Graphical representations, like demand curves, are utilized to demonstrate these concepts, providing an intuitive understanding of market dynamics.

Takeaways

• 📚 The video introduces the concept of 'demand' in economics, explaining it as the willingness and ability to purchase a good or service.
• 🛍️ Demand is influenced by factors such as market systems, property rights, and the role of incentives in shaping consumer behavior.
• 📉 The law of demand states that there is an inverse relationship between price and quantity demanded; as prices rise, quantity demanded falls, and vice versa.
• 📈 Demand can be represented through a demand schedule, a table showing the quantity demanded at various prices, and a demand curve, which is typically downward sloping.
• 🔄 A change in quantity demanded occurs when there is a change in the price of the good, causing a movement along the demand curve.
• 🔄 A change in demand itself is caused by factors other than the price of the good, such as changes in tastes, income, or expectations about future prices.
• 🛒 The acronym 'TRIBE' is used to remember the factors that can change demand: Tastes and preferences, Related goods (substitutes and complements), Income, Number of buyers, and Expected future prices.
• 👖 Tastes and preferences can shift demand as seen with the example of the popularity of skinny jeans, which has decreased over time.
• 🛍️ Substitutes and complements are related goods that affect demand; an increase in the price of a substitute leads to increased demand for the other good, while a decrease in the price of a complement leads to increased demand for related goods.
• 💰 Changes in income affect demand differently for normal and inferior goods; normal goods see increased demand with higher income, while inferior goods see decreased demand.
• 📊 The number of buyers directly impacts demand; more buyers result in increased demand, and fewer buyers result in decreased demand.
• 🔮 Expectations about future prices can influence current demand; if consumers expect prices to rise, they may increase their current demand to avoid higher future costs.

Q & A

What is the main topic of the video?

The main topic of the video is to introduce and explain the concept of 'demand' in economics.

What is a market according to the script?

A market is a system that brings together buyers and sellers, which can be physical or digital, facilitating trade.

Why is a well-defined system of property rights important for the market system to work properly?

A well-defined system of property rights is important because it ensures that people are confident that what they produce or buy is theirs and cannot be taken without their consent.

What is an incentive in the context of the video?

An incentive is something that provides a person with a reason to do something, which can be monetary or non-monetary.

How do prices act as an incentive according to the video?

Prices act as an incentive by influencing people to find alternatives when prices rise or to buy less of a product, and to buy more when prices fall.

What is the definition of demand given in the video?

Demand is the willingness and ability to buy a good or service, where both wanting the thing and being able to purchase it are required.

What is the law of demand?

The law of demand states that price and quantity demanded are inversely related; as the price rises, quantity demanded falls, and vice versa.

How can the law of demand be illustrated?

The law of demand can be illustrated through a demand schedule, which is a table showing the quantity demanded at different prices, or through a demand curve on a graph.

What is the difference between a change in quantity demanded and a change in demand?

A change in quantity demanded is caused by a change in the price of the good, causing movement along the demand curve. A change in demand is caused by factors other than the price of the good, causing a shift of the entire demand curve.

What are the five basic reasons that can cause a change in demand, as mentioned in the script?

The five basic reasons for a change in demand are: a change in tastes and preferences, a change in the price of related goods, a change in income, a change in the number of buyers, and a change in expected future prices.

How does the video describe substitutes and complements in relation to demand?

Substitutes are goods that buyers see as similar to another good, and if the price of one substitute rises, demand for the other increases. Complements are goods that are used together, and if the price of one complement falls, demand for the other increases.

What is the mnemonic 'TRIBE' used for in the script?

The mnemonic 'TRIBE' is used to remember the five basic reasons that can cause a change in demand: Tastes and preferences, Related goods, Income, Buyers, and Expected future prices.

How does the video explain the effect of income on demand for normal goods versus inferior goods?

For normal goods, when income rises, demand also rises. For inferior goods, when income rises, demand actually falls because people tend to buy cheaper alternatives.

What is the mnemonic 'ERDL' used for in the script?

The mnemonic 'ERDL' stands for 'Increase Right, Decrease Left' and helps remember that an increase in demand shifts the demand curve to the right, while a decrease shifts it to the left.

Outlines

00:00

📚 Introduction to Demand and Market Basics

This paragraph introduces the concept of demand in economics and the importance of markets, which are platforms for buyers and sellers to trade goods and services. It emphasizes the necessity of a well-defined system of property rights for the market to function effectively. The role of incentives in influencing behavior is also discussed, highlighting that people respond to both monetary and non-monetary incentives. The paragraph sets the stage for a deeper dive into the law of demand and its implications on consumer behavior.

05:05

📉 The Law of Demand and Its Graphical Representation

This paragraph delves into the law of demand, which posits an inverse relationship between the price of a good and the quantity demanded. As prices increase, the quantity demanded decreases, and vice versa. The concept is illustrated through a demand schedule, a table showing the quantity demanded at various prices, and a demand curve, a graphical representation with price on the vertical axis and quantity on the horizontal axis. The paragraph clarifies the difference between a change in quantity demanded, which occurs when the price changes, and a change in demand, which is influenced by factors other than price.

10:10

🔄 Factors Influencing Changes in Demand

This paragraph explores the various factors that can cause a change in demand, moving beyond price fluctuations. The mnemonic 'TRIBE' is introduced to remember these factors: changes in tastes and preferences, the price of related goods, income levels, the number of buyers, and expected future prices. Each factor is explained in detail, including how substitutes and complements affect demand, the impact of income on normal and inferior goods, and how the number of buyers and expectations about future prices can influence current demand levels.

📊 Graphical Shifts in Demand Curves

The final paragraph discusses how changes in demand are represented graphically through shifts in the demand curve. An increase in demand shifts the curve to the right, indicating a higher quantity demanded at every price level, while a decrease in demand shifts the curve to the left. The mnemonic 'ERDL' is provided to remember that an increase in demand moves the curve to the right and a decrease to the left. The paragraph concludes with a light-hearted note, inviting viewers to look forward to the next video about supply, and encourages interaction through likes and checking out additional study aids.

Keywords

💡Supply and Demand

Supply and Demand is a fundamental concept in economics that describes the relationship between the quantity of a good or service that producers are willing to supply and the quantity that consumers are willing to purchase at various price points. In the video, the focus is on 'Demand,' which is introduced as a 'cute little guy,' emphasizing the approachability of the topic. The script discusses how understanding markets, which bring together buyers and sellers, is crucial to grasping the dynamics of supply and demand.

💡Markets

Markets are the venues where buyers and sellers interact, facilitating trade. They can be physical places or digital spaces. The script explains that markets are essential for the trade of goods and services, such as trading an hour of teaching economics for a steak dinner. The concept of markets is foundational to understanding how supply and demand operate in an economic system.

💡Property Rights

Property rights refer to the legal rights of individuals to control, use, and transfer their property. In the context of the video, a well-defined system of property rights is highlighted as pivotal for the market system to work properly. People must be confident that they have exclusive rights to what they produce or buy, ensuring that no one can take it from them without consent.

💡Incentives

Incentives are factors that motivate individuals to take certain actions. The video script points out that people respond to incentives, which can be monetary or non-monetary. For example, the script mentions how the presence of police issuing speeding tickets influences driving behavior. In economics, incentives are crucial in understanding how changes in factors like prices can affect consumer and producer behavior.

💡Price

Price is the monetary value at which goods and services are exchanged in a market. The script explains how prices provide incentives for consumers, such as when prices rise, consumers may seek alternatives or reduce their purchases. Prices are a key determinant in the quantity demanded and are central to the law of demand.

💡Law of Demand

The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded. As prices increase, the quantity demanded decreases, and vice versa. The video uses this law to illustrate the basic behavior of consumers in response to price changes, such as buying more of a product when its price decreases.

💡Demand Schedule

A demand schedule is a table that shows the quantity of a good that consumers are willing to purchase at various prices. The script uses the example of an individual's demand schedule for skittles to demonstrate how the quantity demanded varies with price. This tool helps to visualize and understand consumer preferences and behavior.

💡Demand Curve

The demand curve is a graphical representation of the demand schedule, with price on the vertical axis and quantity on the horizontal axis. The video script describes the demand curve as typically downward-sloping, indicating that as price decreases, the quantity demanded increases. This curve is a visual tool to understand and predict changes in consumer behavior in response to price changes.

💡Change in Quantity Demanded

A change in quantity demanded occurs when there is a movement along the demand curve due to a change in price. The video script emphasizes that this is different from a change in demand itself. For example, if the price of a product falls, consumers may buy more of it, but this does not change the overall demand for the product unless other factors influence it.

💡Change in Demand

A change in demand refers to a shift in the demand curve itself, which can be to the right (increase in demand) or to the left (decrease in demand). This shift is caused by factors other than the price of the good, such as changes in tastes, income, or expectations. The video script explains that this is a critical distinction from a change in quantity demanded, as it represents a broader change in consumer preferences or circumstances.

💡Tastes and Preferences

Tastes and preferences are subjective likes and dislikes that influence consumer choices. The script uses the example of the changing popularity of skinny jeans to illustrate how shifts in tastes and preferences can lead to a change in demand for a product. When a product becomes less popular, the demand for it decreases, reflecting a shift in consumer preferences.

💡Related Goods

Related goods are items that consumers consider in relation to one another when making purchasing decisions. The video script differentiates between substitutes and complements. Substitutes are similar goods where an increase in the price of one leads to an increase in demand for the other. Complements are goods that are used together, and a change in the price of one affects the demand for the other. Understanding related goods is essential for analyzing how changes in the market for one product can impact others.

💡Income

Income is the money received by individuals, which affects their purchasing power. The video script explains that most goods are normal goods, where an increase in income leads to an increase in demand. However, there are also inferior goods, for which demand decreases as income rises. Understanding the relationship between income and demand is important for predicting consumer behavior.

💡Buyers

The number of buyers in a market influences the overall demand for goods and services. The video script points out that an increase in the number of buyers leads to an increase in demand, while a decrease in the number of buyers results in decreased demand. This concept is straightforward but crucial for understanding market dynamics.

💡Expected Future Prices

Expected future prices refer to consumers' anticipation of how the price of a good may change in the future. The video script uses the example of a consumer deciding whether to buy a pair of sneakers now or later based on expectations of future price changes. If consumers expect prices to rise, they may increase their current demand to avoid higher costs later.

Highlights

Introduction to the concept of demand in economics.

Markets are defined as places where buyers and sellers come together, either physically or digitally.

Importance of well-defined property rights for the functioning of the market system.

People respond to incentives, which can be monetary or non-monetary.

Explanation of how prices act as an incentive affecting consumer behavior.

Definition of demand as the willingness and ability to buy a good or service.

The law of demand, which states that price and quantity demanded are inversely related.

Illustration of demand through demand schedules and the concept of individual vs. market demand.

Graphical representation of demand with a downward-sloping demand curve.

Difference between a change in quantity demanded and a change in demand itself.

Factors causing a change in demand, summarized by the acronym TRIBE.

Tastes and preferences as a determinant of demand, affecting popularity of products.

Impact of the price of related goods, substitutes, and complements on demand.

Income changes and their effect on the demand for normal and inferior goods.

The influence of the number of buyers on the overall demand for a good.

How expectations about future prices can alter current demand.

Graphical representation of changes in demand as shifts of the demand curve.

Mnemonic 'ERDL the turtle: increase right, decrease left' to remember shifts in demand.

Conclusion of the lesson on demand and a teaser for the next topic, supply.

Invitation for viewers to engage with the content through likes and checking out study aids.

Transcripts

what is up people i hope you're  having a great day in this video  

i'm gonna introduce to you  demand so what are we waiting for  

and don't forget to subscribe and  smash that like button during the song

there's a famous two-headed monster in  economics known as supply and demand  

and in this video we're gonna get acquainted  with demand don't worry he's a cute little  

guy before we get to demand though let's just  spend a minute setting up the idea of markets  

a market refers to something that brings together  buyers and sellers so it can be physical or  

it could be digital we've talked a little bit  about trade already and markets facilitate trade  

they help me trade an hour of my time teaching  economics for something i want like a delicious  

steak dinner but i'm starting to get ahead  of myself a well-defined system of property  

rights is pivotal for the market system to work  properly people have to be confident that if they  

produce or buy something that it's theirs and that  nobody can take it from them without their consent  

additionally it's vital to point out that people  respond to incentives an incentive provides  

a person with a reason to do something some  incentives are monetary but many are non-monetary  

for example time laws and regulations provide  people with incentives to do or not do certain  

things like i know this spot on my drive home  where i drive slowly because i know the 5-0 likes  

to post up and hand out speeding tickets fool  me once it fooled me we can't get fooled again  

prices also provide people with incentives for  example if prices rise dramatically we have an  

incentive to find something else instead of  the thing that just got more expensive or if  

we still have to buy it then we try to buy less  of it than we would have if it had been cheaper  

we'll also see how government regulations  cause people to respond to incentives  

though often times it may not be in the way  intended by the rulemakers i have a feeling you're  

going to like demand a lot of this lesson is quite  intuitive let's start by defining our term demand  

is the willingness and ability to buy a good or  service now both parts have to be true you have  

to want the thing and you need to actually be  able to buy it a nine-year-old little boy might  

want to buy a lambo but unless kid is junior  royalty he probably doesn't have the ability  

so he doesn't have any demand for the product  okay so far so good next up is something known as  

the law of demand which states that price and  quantity demanded are inversely related as the  

price rises quantity demanded falls and  as the price falls quantum demanded rises  

this is also quite intuitive think about it do  consumers like high prices or low prices well we  

like low prices and when the price of something  falls we're more likely to buy it or to buy more  

of it than we would have if the price was higher  there are two ways that we can illustrate this  

the first is what's known as a demand schedule a  demand schedule is a table that shows the quantity  

demanded at different prices it could look  something like this now this could represent  

my individual demand schedule for skittles and  as we already established my quantity demanded  

is higher at lower prices than it is at higher  prices but i'm just one person so what about  

everybody else well they also have their own  demand schedules for skittles by the way of  

course i realize we don't walk into a store with  exact numbers like this saying if skittles are  

one dollar i'll buy two packs but we behave as if  we do so even if this is overly precise it does a  

pretty good job explaining consumer behavior so we  also have a market demand schedule which includes  

everybody's preferences for skittles and guess  what the law of demand still holds consumers buy  

more at lower prices however in any economics  class this isn't usually how we're going to  

look at demand 98 of the time we're going to  graph it our vertical axis is price and our  

horizontal axis is quantity and we're going to  draw a demand curve that matches the information  

and what we have here is our first demand curve  notice that it's downward sloping and if you're  

taking notes you don't need to draw it with all of  these specific prices and quantities you can draw  

it like this with variables so what causes us to  move from point a to point b the price decreased  

causing us to increase our quantity demanded  this is known as a change in quantity demanded  

our demand hasn't actually changed the demand  schedule and the demand curve both show us our  

current preferences for the good at all possible  prices if the price is p1 then we want q1 units  

and if the price falls to p2 we'll buy more  the only thing that determines what quantity  

we'll actually buy is the price when the price  changes it causes a change in quantity demanded  

on our demand curve this causes a movement along  the demand curve an upward movement indicates the  

price has risen and that we decrease our quantity  demanded while a downward movement indicates the  

price has fallen and this increases our quantity  demanded this part is super important the only  

thing that causes a change in quantity demanded  is a change in the price of the good if it sounds  

like i'm making a big deal about this i am it's  really important to know the difference between a  

change in quantity demanded which is what we just  did and a change in demand which is coming up next  

all right so this part of the lesson is all about  okay but what causes our demand for something to  

actually change as in the price tomorrow is the  same as the price today but our demand for the  

good increases or decreases there's actually  something really important in what i just said  

the reason our demand changes must be something  besides a change in the price of the good  

a change in the price does not change our demand  it changes say it with me the quantity demanded of  

the good like we just discussed we have five basic  reasons that our demand for something will change  

we can use the acronym tribe as a mnemonic to help  us remember it a change in tastes and preferences  

change in the price of related goods a change  in income a change in the number of buyers and  

a change in expected future prices okay so let's  break each of these down a little bit further  

tastes and preferences refer to something becoming  more or less popular remember when skinny jeans  

were in well they're not anymore so the demand  for them has decreased it's not about the price  

of skinny jeans it's that people's tastes and  preferences have shifted away from skinny jeans  

when something becomes more popular we'd say that  the demand increases a change in the price of a  

related good also causes a change in demand now  this one needs a little bit more explanation we  

have two types of related goods substitutes and  complements a substitute is a good that buyers  

see as similar to another good for example let's  take sprite and 7up they're both lemon-lime soft  

drinks now we might prefer one over the other  but roughly speaking they're pretty similar  

let's call sprite good a and seven up good b if  the price of sprite were to double what do you  

think would likely happen to demand for seven up  it would increase why because when the price of  

sprite increased people substituted away from  the good that became relatively more expensive  

and they demand more of the other one even though  the price of 7up didn't change so we can formally  

say that if a and b are substitutes and the price  of good a rises we will demand more of good b on  

the other hand if the price of good a falls we  will demand less of good b complements are goods  

that consumers use together think of all the great  combos cereal and milk peanut butter and jelly a  

gaming console and games if the price of a gaming  console falls will happen to demand for games  

well demand for games will increase even  though the price of games hasn't changed  

what changed is that now more people will  buy the console because it's cheaper and  

once we buy the console well we will buy games  because what good is a console with no games  

so if we call the console good a and games  good b we can say that if the price of a  

falls the demand for b increases and when the  price of a rises the demand for b decreases  

okay next up is a change in income and this one is  pretty straightforward most goods are normal goods  

meaning that when our income rises the demand  for the good also rises on the other hand  

there are other goods known as inferior goods  which means that when people's income rises  

the demand actually falls now i know that sounds  kind of weird but think about it if a person loses  

their job they still need to buy food right they  probably buy cheaper food than they normally would  

maybe they buy generic brands instead of name  brand that kind of thing so for inferior goods  

our demand increases when our income falls but  the vast majority of goods are normal goods why  

we call them normal and when our income rises so  does our demand a change in the number of buyers  

will also change the demand for a good and this  one is also pretty straightforward if the number  

of buyers increases so does demand and if the  number of buyers decrease well you guessed it  

so does demand lastly a change in expectations  about future prices will affect demand as well  

let's say i'm on stockx and i see a pair of dunks  and i'm trying to decide if i should cop well  

if i expect the same shoes to be even more  expensive in the future then my demand today  

increases because i want to get the shoes before  the price goes up on the other hand if i hear from  

my cook group that the price of these shoes  is about to drop in the next couple of weeks  

well then my demand today decreases because i'd  rather go ahead and wait and buy them when they  

become cheaper hey stockx if you appreciate  the shout send some j's over to your boy  

okay so those are our demand determinants but what  does it look like on the graph when demand changes  

this causes a shift of the demand curve the entire  demand curve shifts to the right or to the left  

when demand increases the demand curve shifts  to the right notice how this shows that at any  

given price there's a greater quantity demanded  again this illustrates that the shift must have  

been caused by something other than a change  in the price when demand decreases the demand  

curve shifts to the left a kind of goofy memory  aid for this is erdl the turtle increase right  

decrease left that mnemonic will serve you well  all year long all right well that's it for demand  

next up demands even cuter sister supply until  next time this has been a la money production  

thanks again for watching and please hit that  like button if you didn't already and be sure  

to check out the description for links to the  answers to the practice questions and some of the  

great study aids like econ and 250 words that  i've made for you see you in the next video