Lecture on Demand

Introduction

• Presenter: Mr. Clifford
• Topic: Demand in Economics
• Context: Demonstrated using a gallon of milk

Law of Demand

• Definition: Inverse relationship between price and quantity demanded
  • Price goes down → Quantity demanded increases
  • Example: Demand schedule (price decreases from $4 to $1 → quantity demanded increases)
  • Demand Curve: Downward sloping curve illustrating the law of demand

Reasons for Downward Sloping Demand Curve

• Substitution Effect:
  • Price of milk decreases → People buy more milk instead of other products
  • Price of milk increases → People buy less milk and more substitutes
• Income Effect:
  • Price of milk decreases → Purchasing power increases → More milk bought
  • Price of milk increases → Purchasing power decreases → Less milk bought
• Law of Diminishing Marginal Utility:
  • Definition: Utility (satisfaction) decreases with additional consumption
  • First sip of milk very satisfying; additional sips less so
  • Applies to purchasing additional gallons of milk as well
  • Explains the downward slope of the demand curve

Changes in Demand vs. Movement Along the Demand Curve

• Price Changes: Movement along the curve
• Other Factors: Shift in the demand curve
• Decrease in Demand: Entire curve shifts left (e.g., study shows milk causes baldness)
• Increase in Demand: Entire curve shifts right (e.g., study shows milk improves intelligence in kids)

Determinants of Demand (Demand Shifters)

1. Tastes and Preferences:
   • Favorable study → Increase in demand
2. Number of Consumers:
   • More consumers → Increase in demand
3. Price of Related Goods:
   • Substitutes: Price of almond milk increases → Increase in demand for cow's milk
   • Complements: Price of cereal decreases → Increase in demand for milk
4. Income:
   • Normal Goods: Increase in income → Increase in demand; Decrease in income → Decrease in demand
   • Inferior Goods: Increase in income → Decrease in demand; Decrease in income → Increase in demand
5. Expectations:
   • Expected price increase → Increase in demand now
   • Expected price decrease → Decrease in demand now

Important Concepts

• Change in Quantity Demanded: Movement along the demand curve due to price change
• Change in Demand: Shift of the demand curve due to factors other than price

Examples

• Graph Analysis: Points A, B, and C on a demand curve
  • Movement from A to B: Change in quantity demanded (due to price change)
  • Movement from A to C: Change in demand (same price, higher demand)

Clarifications

• **Demand versus Quantity Demanded: **
  • Price changes → Changes in quantity demanded
  • Demand changes due to five shifters

Conclusion

• Preview of next video on supply and supply curve shifters
• Final note on not chugging a gallon of milk due to adverse personal experience

Remember: Only price changes quantity demanded; other factors shift the demand curve.