Economic Lowdown: Understanding Demand

Introduction

• Presented by the Federal Reserve Bank of St. Louis.
• Host: Scott Wallin.
• Topic: Economic concept of demand.

Definition of Demand

• Demand: Quantity of a good or service buyers are willing and able to purchase at various prices over a specified time.
  • Components:
    • Willingness to Purchase: Desire to buy.
    • Ability to Pay: Financial capability to buy.

Example

• Wanting a Corvette but can't pay: Not part of market demand.
• Can afford sauerkraut but don't want: Not part of market demand.

Law of Demand

• As price increases, quantity demanded decreases.
• As price decreases, quantity demanded increases.
• Variables: Price and Quantity.

Graphical Representation

• X-axis: Quantity of chocolate bars.
• Y-axis: Price of chocolate bars.
• Demand Curve: Downward sloping.
  • Inverse relationship between price and quantity demanded.

Shifts in the Demand Curve

• Demand curve shifts due to changes in market conditions.
• Example: Fear of chocolate shortage.
  • Anticipated price increase leads to higher current demand.
  • Demand curve shifts to the right.

Factors Causing Demand Curve Shifts

1. Consumer Expectations
   • Fear of shortage increases demand.
2. Consumer Tastes or Preferences
   • New health benefits increase demand.
3. Number of Consumers
   • More consumers increase demand.
4. Change in Income
   • Recession decreases income, decreasing demand.
5. Price of Substitute Goods
   • Cheaper substitutes decrease demand for the original good.
6. Price of Complementary Goods
   • Increased price of complements decreases demand for the related good.

Types of Changes

• Change in Quantity Demanded
  • Caused by a change in the price of the good.
  • Movement along the demand curve.
• Change in Demand
  • Caused by external changes in the market.
  • Shifts the entire demand curve.

Conclusion

• Overview of demand dynamics.
• Presented by the Federal Reserve Bank of St. Louis.
• For more resources, visit stlouisfed.org.