Lecture Notes: Law of Demand
Introduction to Law of Demand
- Core concept of microeconomics.
- Intuitive idea:
- Raising the price of a product lowers the quantity demanded.
- Lowering the price of a product raises the quantity demanded.
Demand vs. Quantity Demanded
- Important distinction:
- Demand refers to the relationship between price and quantity demanded.
- Quantity Demanded refers to the specific amount consumers are willing to buy at a given price.
- To clarify:
- Formal discussions focus on the relationship (demand).
- When specifying a specific quantity, use "quantity demanded".
Example: Book Pricing Scenario
- Example of a science fiction ebook release, titled "Space Whatever".
- Market study on how price affects demand leads to a demand schedule.
Demand Schedule Table
| Scenario | Price | Quantity Demanded |
|---------------|-----------|------------------------|
| A | $2 | 60,000 |
| B | $4 | 40,000 |
| C | $6 | 30,000 |
| D | $8 | 25,000 |
| E | $10 | 23,000 |
Demand Curve
- The demand schedule can be represented as a demand curve by plotting the points.
- Demand curve captures continuous changes in quantity demanded relative to price.
Graphing the Demand Curve
- Y-axis: Price
- X-axis: Quantity Demanded
- Points plotted based on the demand schedule:
- Scenario A: $2, 60,000 units
- Scenario B: $4, 40,000 units
- Scenario C: $6, 30,000 units
- Scenario D: $8, 25,000 units
- Scenario E: $10, 23,000 units
- Draw the demand curve, illustrating the negative relationship between price and quantity demanded.
Key Takeaways
- Quantity Demanded:
- Refers to how many units people are willing to buy at a specific price.
- Demand:
- Represents the entire relationship between price and quantity demanded.
- Changes in quantity demanded occur along the demand curve when only price changes (ceteris paribus).
- Future videos will explore how changes in other factors can alter demand.