Y1/IB 5) Demand and the Demand Curve

Summary

The video explains the concept of demand in economics, focusing on the quantity of goods or services consumers are willing and able to buy at a given price. It highlights the law of demand, which shows an inverse relationship between price and quantity demanded, demonstrated through movements along the demand curve. It also explores non-price factors, such as population, advertising, income, and substitutes, which can shift the demand curve. The importance of the ceteris paribus assumption in isolating the law of demand is emphasized throughout the discussion.

Takeaways

• 📉 Demand in economics refers to the quantity of a good or service that consumers are willing and able to buy at a given price and time.
• 🛑 Demand must be 'effective', meaning consumers must both want and be able to purchase the product.
• ⚖️ The law of demand states there is an inverse relationship between price and quantity demanded: when the price goes up, demand goes down, and vice versa.
• 📊 A demand curve slopes downwards, showing that as the price decreases, the quantity demanded increases.
• ⬇️ A price increase causes a movement up the demand curve, leading to a contraction in demand, while a price decrease leads to an extension of demand.
• 🔄 Movements along the demand curve occur only when there are price changes, holding other factors constant (ceteris paribus).
• 🌍 Several non-price factors can shift the demand curve, including population, advertising, substitute goods' prices, income, and consumer preferences.
• 📈 If demand increases due to non-price factors, the demand curve shifts to the right, indicating higher quantity demanded at the same price.
• 📉 A decrease in demand caused by non-price factors results in a leftward shift of the demand curve.
• 📰 External reports, seasonal factors, and trends can also affect demand, causing shifts in the demand curve even if the price remains unchanged.

Q & A

What is the definition of demand in economics?

Demand in economics refers to the quantity of a good or service that consumers are willing and able to buy at a given price during a specific time period.

What does 'effective demand' mean?

'Effective demand' means that consumers must be both willing and able to purchase a product or service for demand to exist in economic terms.

What is the relationship between price and quantity demanded?

There is an inverse relationship between price and quantity demanded, which means when the price of a product goes up, the quantity demanded goes down, and when the price goes down, the quantity demanded goes up.

What is the '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 the price increases, the demand decreases, and vice versa.

What does a demand curve represent, and why does it slope downwards?

A demand curve represents the relationship between price and quantity demanded. It slopes downwards because as the price falls, consumers are willing to purchase more of the good, and as the price rises, they buy less.

What is meant by 'contraction of demand' and 'extension of demand'?

'Contraction of demand' occurs when the price of a good increases, causing the quantity demanded to decrease. 'Extension of demand' happens when the price of a good decreases, leading to an increase in the quantity demanded.

What does 'ceteris paribus' mean in economics, and why is it important for the law of demand?

'Ceteris paribus' is a Latin term meaning 'all other things being equal.' It is used in economics to isolate the effect of price on demand by assuming that other factors remain constant.

What are some non-price determinants of demand?

Non-price determinants of demand include factors such as population changes, advertising, the price of substitutes, consumer income, fashion and tastes, interest rates, and the price of complementary goods.

What happens to the demand curve when non-price factors affect demand?

When non-price factors affect demand, the entire demand curve shifts. If demand increases, the curve shifts to the right; if demand decreases, it shifts to the left, even if the price remains unchanged.

How do complementary and substitute goods affect demand?

For complementary goods, when the price of one good (e.g., strawberries) decreases, the demand for its complement (e.g., cream) increases. For substitute goods, when the price of one good (e.g., Coke) rises, the demand for its substitute (e.g., Pepsi) increases.

Outlines

00:00

📉 Understanding Demand and the Law of Demand

In this section, the speaker defines demand in economics as the quantity of a good or service that consumers are willing and able to buy at a given price within a given time period. This is referred to as 'effective demand,' meaning consumers must both desire and have the capacity to purchase. The inverse relationship between price and quantity demanded is explained through the Law of Demand: when prices increase, quantity demanded decreases, and when prices decrease, quantity demanded increases. The speaker also introduces the concept of a demand curve, which illustrates this relationship with price on the y-axis and quantity on the x-axis. The curve slopes downward, representing the negative relationship between price and quantity demanded. Additionally, the speaker highlights movement along the curve due to price changes, introducing the terms 'contraction of demand' when prices rise and 'extension of demand' when prices fall. These terms only apply when price changes, assuming all other factors remain constant (ceteris paribus).

05:02

🔄 Shifts in Demand Due to Non-Price Determinants

This section focuses on how various factors beyond price can influence demand, causing shifts in the demand curve. The speaker explains that while price changes result in movement along the demand curve, factors such as population growth, advertising, the prices of substitutes and complements, income levels, interest rates, fashion trends, and seasonal effects can shift the entire demand curve either to the right (increase in demand) or to the left (decrease in demand). A rightward shift signifies that more is demanded at the same price, while a leftward shift indicates that less is demanded. These factors are termed 'non-price determinants of demand' and are important when analyzing real-world demand, where many variables affect consumer behavior beyond just price. The speaker also mentions that positive reports about a product, favorable seasonal conditions, and other situational factors can further influence demand shifts, thus altering the quantity demanded at the same price point.

Keywords

💡Demand

Demand refers to the quantity of a good or service that consumers are willing and able to purchase at a given price during a specific time period. In economics, demand must be effective, meaning consumers must both want the product and have the means to buy it. This is central to understanding how markets function, as illustrated in the video with the example of luxury cars and large houses, where people may desire these items but are not necessarily able to afford them.

💡Law of Demand

The Law of Demand explains the inverse relationship between price and the quantity demanded of a good or service. As prices rise, demand typically decreases, and as prices fall, demand increases. This concept is fundamental to the video’s discussion of how consumer behavior changes with price fluctuations, using diagrams to show the downward slope of the demand curve as prices fall and demand rises.

💡Effective Demand

Effective demand in economics is when consumers are both willing and financially able to purchase a product. The video emphasizes that demand is not just about wanting a product but also having the capacity to buy it. For example, someone may want to buy a luxury sports car but cannot if they lack the financial resources.

💡Demand Curve

The demand curve is a graphical representation of the relationship between the price of a good and the quantity demanded. It typically slopes downwards from left to right, indicating that as price decreases, demand increases. In the video, the curve is used to demonstrate price movements and the corresponding changes in demand, such as the contraction and extension of demand.

💡Contraction of Demand

A contraction of demand occurs when the price of a good or service increases, causing the quantity demanded to decrease. In the video, this is shown by movement up the demand curve as a result of a price hike. For instance, if the price of a product rises from P1 to P2, the quantity demanded decreases, leading to a contraction.

💡Extension of Demand

An extension of demand refers to an increase in the quantity demanded when the price of a product decreases. The video demonstrates this with a shift down the demand curve, where lower prices lead to higher demand, moving from point A to point C. This concept is crucial in illustrating how price reductions make goods more accessible to consumers.

💡Ceteris Paribus

Ceteris Paribus is a Latin term meaning 'all other things being equal.' In economics, it is used to isolate the effect of one variable, such as price, on demand, assuming that no other factors change. The video stresses this assumption to explain the law of demand without the influence of external factors, but also acknowledges that in reality, many factors besides price can affect demand.

💡Non-price Determinants of Demand

Non-price determinants of demand are factors other than price that influence the demand for a good or service. These include population changes, income levels, advertising, and consumer preferences. The video explains how these factors can cause the demand curve to shift, unlike price changes, which only move along the curve. For example, a successful advertising campaign might increase demand, shifting the curve to the right.

💡Substitutes

Substitutes are goods that can replace each other in consumption, such as Coke and Pepsi. When the price of one substitute increases, the demand for the other typically rises. The video uses this concept to explain how price changes in one product can affect the demand for another similar product, as consumers switch to the cheaper option.

💡Complements

Complements are goods that are often used together, such as strawberries and cream. A decrease in the price of one complementary good can lead to an increase in demand for the other. The video highlights this relationship, explaining that when the price of strawberries drops, the demand for cream may increase as they are typically consumed together.

Highlights

Demand in economics refers to the quantity of a good or service that consumers are willing and able to buy at a given price and time.

Effective demand requires consumers to be both willing and able to purchase a product or service.

The law of demand states that there is an inverse relationship between price and the quantity demanded, meaning as price increases, quantity demanded decreases.

Demand curves are downward sloping, representing the inverse relationship between price and quantity demanded.

Movements along the demand curve occur when there are changes in price, leading to either a contraction or extension of demand.

A contraction in demand happens when the price increases, reducing the quantity demanded.

An extension in demand occurs when the price decreases, increasing the quantity demanded.

The assumption of 'ceteris paribus' in economics holds all other factors constant to isolate the effects of price changes on demand.

Non-price determinants, such as population, advertising, and income, can shift the demand curve without changing the price.

An increase in population, effective advertising, and rising incomes can shift the demand curve to the right, indicating increased demand.

Substitutes and complements are key factors affecting demand. For example, a price increase in a substitute can raise demand for the other good.

Changes in fashion, tastes, and interest rates also influence demand. A trend becoming fashionable can increase demand for that product.

The demand curve shifts to the left when non-price determinants cause a decrease in demand, even if the price remains constant.

Good or bad reports and seasonal weather conditions can also affect demand, such as favorable weather increasing demand for certain goods.

Price changes move demand along the curve, while non-price factors shift the demand curve itself.

Transcripts

okay demand in economics that start up

by defining what we mean by demand

demand economics is the quantity of a

good or service that consumers are

willing and able to buy at a given price

in a given time period within a

definition we are talking about

effective demand consumers must be

willing and able to buy something okay

wrong willing to buy so we're all going

to buy a luxury sports car robe willing

to buy a massive house and in it

but a lot of us are not able we need to

be willing and able for demented to

occur in economics all right so demand

is always effective effective means

willing and able there is an inverse

relationship between price and the

quantity demanded this makes logical

sense this is the law of demand when the

price goes up we want less something

quantity demanded goes down when the

price goes down something becomes

cheaper we want more of it quantity

demanded goes up very simple in order to

that all right

therefore when it comes to drawing a

demand curve when it comes to

demonstrate in this relationship between

price and quantity the kernel slope

Gamble's with what price and y-axis

consume the excesses naturally to show

us relationship the curve on sloped

downwards and what does it mean it means

some of the price falls quantity

demanded will go up okay when the price

goes up quantity 200 book 4 okay that is

the emotional a ship

there which is why Detroit always down

and certainly we also draw a linear just

to simplify the law of demand

relationship in truth it is a curve but

we don't need to Torrance occur to show

the basic idea command

okay now to just understand this law

better let's show the road to bend on an

actual diagram so you got price and

likes as always now quantum the x-axis

always let's start the price of p1 the

quantity demanded Q or read off the

demand now let's increase the price

let's increase the price of Q to P -

okay so let's collect you - I remember

that the price has increased quantity

developers fallen - Q - okay right let's

say you saw that when a that's what

we're on the demand curve as a result of

the pricing rules you have on to point B

we have only changed the price we move

along the demand curve in this case

because the price has gone up we move up

the demand curve and that movement we

call a contraction of demand okay

it's a contraction because demand is

reduced contract means get smaller

demand is reduced from q1 to q2 the

quantity Avengers forward let's now

reduce the price that says P 3 P 3 the

price is 1 P 1 2 P 3 ok quantity

demanded has gone up you expect that

girl services become cheaper that we

want more of it so quantity demanded

goes up we move along the curve from

point A to point C okay we move down the

curve that movement is called an

extension of demand okay demand extends

or gets bigger

okay so that's what we call it an

extension tomato that is increasing

through so we move down the curve we

call it an extension to that move up the

curb its contraction Internet can we

only ever see these two terms we only

use those terms when the price changes

then we move along the curve and so

anytime the price changes move along the

curve but that is assuming okay that's

the fact very simple large amount

assumes ceteris paribus okay a latin

term but a key term in economics because

it means okay all other things being

equal a fundamental assumption is simply

to isolate the Lord demand if we assume

everything else to be equal nothing else

to affect a man just price we can

isolate this law okay so when we change

the price only on we see the effects of

the man we're assuming sentries parents

none of the factors can affect our

demand okay well in reality lots of the

factors can affect up demand so in

reality this assumption doesn't hold so

let's have a look at the other fact is

not price other factors now that will

affect your demand for something okay so

to do so I'm gonna redraw our demand

curve I will now going to let other

factors affect the man

okay so let's do that so big this time

can you go to basic demand we always get

a price on the y-axis and now always

quantity on the x-axis when the navel at

d1 let's start the price okay then we'll

have you want to you on now in truth

many things not just price many things

will affect on demand

okay the price doesn't have to change

but our demand will change or all the

factors will affect on demand not the

price well I can categorize those using

this new watch device very useful for

this reason can you force it it's

purposely spun wrong so these things

going to affect demand okay not just the

price of us see what this means of

population changes advertising for a

good or service the number of

substitutes the price of substitutes as

well as the number income fashion and

tastes interest rates and the price of

complements

okay so we've got a few things here that

I don't listen to that aren't so

population changes with an increase in

population there have been more people

that are willing and able to buy a good

or service so demand will increase a big

advertising campaign

increase demand you can't go anymore

waiting to buy something the price of

substitute Goods kind of price of

substitutes the price of a substitute

goes up the price of substitute goes up

demand is going to increase for the

other good so yeah

substitutes are goods that are very

similar that you can you can exchange

consumption or very easily

all right so Coke and Pepsi the price of

coke goes up demand of the Pepsi is

going to increase and people are going

to switch to buying Pepsi as a result in

come on see the more you can your hair

the more you're going to demand the more

able the author buy something fashion

tastes cause the more fashion or

something is increased and the multiband

you'll increase interest rates the lower

interest rates behind the demand and the

price of complements of strawberries

including the price of strawberries goes

down the demand of cream will go up

okay so complements of goods that tend

to be bought together or jointed the net

so any one of these things that will

increase the lend will shift the demand

curve to the right so this is the

difference now whereas with price

changes you moved along the curve

with other factors we call them

non-price determinants of demand any one

of these determinants that will increase

demand will shift the curve penny so the

price will stay exactly the same so

nothing to do with the price these

factors will still increase tonight when

crystalline are shifting the curve look

at it increasing quantity price to say

the same quantities gone up okay so an

increasing population and increased

advertising okay an increase in the

price of substitutes

in Korea new fashion person comes

fashion reduction interest rates a

reduction advice a compliment it's a

good way to look at them by using

Pacific here

similarly okay the opposite happens

demand will shift to the left okay so if

any one of these factors reduce demand

demand will shift to the left and at the

same price and less will be demanded so

all of this happens when we drop the

assumption of centers purpose okay so

drop that assumption letting all the

other factors affect demand consuming

now but the price doesn't change at all

while other factors will affect event

you can add on to this place

good or bad report so there's a really

good report for something maybe a good

report for a vegetable that maybe is

going to prevent a skin cancer or that

it contains great vitamin C it was

healthy for some wheat I don't know what

it might be a good report will shift in

the moment of the month about report to

the net okay

seasonal weather okay so very good

weather it's good seasonal weather will

ship them out to the right makers buy

more we see that with retail sales

figures okay other things as well will

affect them out okay these are the key

factors that will affect event non-price

attendance at the moment to shape the

code whereas price changes themselves

price changes of a particular good about

one good that we're looking at when we

have to move along the curve are they

contract demand or extend demand okay so

we looked at this member wise downward

sloping price changements and the law of

demand through price changes to the

slope of the code we understand that

we'll extend or contract along the curb

I mean out of the fact that genetic

factors dropping the assumption of

centrist powers that we're going to

shift the curb and increase quantity or

decrease quantity of the same price okay

this is all the key stuff but I demand

it makes you in the sentence correctly

see you next month