Macro 1.4 Demand - NEW!
Summary
TLDRThis 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
📚 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.
📉 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.
🔄 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.
Mindmap
Keywords
💡Supply and Demand
💡Markets
💡Property Rights
💡Incentives
💡Price
💡Law of Demand
💡Demand Schedule
💡Demand Curve
💡Change in Quantity Demanded
💡Change in Demand
💡Tastes and Preferences
💡Related Goods
💡Income
💡Buyers
💡Expected Future Prices
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
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