Y1/IB 5) Demand and the Demand Curve
Summary
TLDRThe 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
- đ 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.
- đ Demand must be 'effective', meaning consumers must both want and be able to purchase the product.
- âïž 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.
- đ A demand curve slopes downwards, showing that as the price decreases, the quantity demanded increases.
- âŹïž 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.
- đ Movements along the demand curve occur only when there are price changes, holding other factors constant (ceteris paribus).
- đ Several non-price factors can shift the demand curve, including population, advertising, substitute goods' prices, income, and consumer preferences.
- đ If demand increases due to non-price factors, the demand curve shifts to the right, indicating higher quantity demanded at the same price.
- đ A decrease in demand caused by non-price factors results in a leftward shift of the demand curve.
- đ° 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
đ 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).
đ 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.
Mindmap
Keywords
đĄDemand
đĄLaw of Demand
đĄEffective Demand
đĄDemand Curve
đĄContraction of Demand
đĄExtension of Demand
đĄCeteris Paribus
đĄNon-price Determinants of Demand
đĄSubstitutes
đĄComplements
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
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