Markets in Action: Introduction to Demand Curves I A Level and IB Economics

Summary

This 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

00:00

📈 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.

05:02

🍓 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.

Keywords

💡Demand curve

The demand curve represents the relationship between the price of a product and the quantity demanded by consumers. In this video, the demand curve for strawberries is illustrated, showing how a change in price affects the quantity sold. An inverse relationship is described, where a price increase reduces demand and a price decrease expands demand.

💡Price elasticity

Price elasticity refers to how sensitive the quantity demanded is to a change in price. In the video, the speaker explains that demand may not always respond uniformly to price changes. For strawberries, a large price increase could result in a significant decrease in demand, while small changes might not have the same impact.

💡Outward shift

An outward shift in the demand curve occurs when more of a product is demanded at the same price. The video describes situations like a successful advertising campaign or the rise in the price of a substitute product (e.g., cherries) as factors that could lead to an outward shift in the demand curve for strawberries.

💡Inward shift

An inward shift in the demand curve means that less of a product is demanded at the same price. The video uses examples like the rise in the price of a complement, such as ice cream, or a fall in disposable income to show how these can reduce the demand for strawberries, causing an inward shift.

💡Substitute goods

Substitute goods are products that can replace one another in consumption. In the video, substitutes for strawberries include cherries and raspberries. If the price of a substitute rises, consumers may switch to buying more strawberries, which would cause an outward shift in the demand curve for strawberries.

💡Complementary goods

Complementary goods are products that are often used together. For strawberries, a complementary product could be ice cream. The video explains that if the price of a complement rises, it might reduce the demand for strawberries, leading to an inward shift in the demand curve.

💡Disposable income

Disposable income is the amount of income households have available to spend after taxes. The video mentions that if real disposable income falls, consumers may cut back on purchases like strawberries, leading to a decrease in demand and an inward shift of the demand curve.

💡Advertising impact

An advertising campaign can change consumers' perception of a product and increase demand. The video gives the example of a successful campaign promoting strawberries as a healthy food, which could increase demand at the same price, shifting the demand curve outward.

💡Movement along the curve

A movement along the demand curve happens when the price of the product itself changes. In the video, if the price of strawberries is lowered in a supermarket promotion, this causes more strawberries to be sold, but the curve does not shift—it represents movement down the existing demand curve.

💡Non-linear demand curve

The non-linear demand curve reflects the idea that the relationship between price and quantity demanded may not always be a straight line. In the video, it is suggested that at certain price levels, consumers may be more or less responsive to changes in price, making the demand curve non-linear.

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