- Explain demand and the law of demand.
- Identify and explain a demand curve.
- Create and interpret a demand curve using a dataset
Figure 1. Gas demand.If the price of gasoline suddenly increases dramatically, fewer people will take to the streets. This is explained by the law of demand.
demand for goods and services
Economists use the termdemandto refer to the amount of a good or service that consumers are willing and able to buy at any given price. Demand is based on needs and wants: a consumer can distinguish between a want and a need, but from an economist's point of view they are the same thing. Demand also depends on solvency. If you cannot pay, you have no valid claims.
What a buyer pays for a unit of a specific good or service is referred to asPreis. The total number of units purchased at that price is calledRequired quantity. An increase in the price of a good or service almost always decreases the quantity demanded for that good or service. On the other hand, a fall in price increases the quantity demanded. For example, when the price of a gallon of gas rises, people look for ways to reduce their consumption by combining multiple errands, carpooling or public transportation, or taking weekend trips or vacations in the local area. Economists call this inverse relationship between price and quantity demandedlaw of demand. The law of demand assumes that all other variables affecting demand are held constant.
An example of the gasoline market can be viewed in table or graph form. A table is called showing the quantity demanded at each price, such as B. Table 1necessary schedule. Price in this case is measured in dollars per gallon of gasoline. Quantity demanded is measured in millions of gallons over a specified time period (eg, per day or per year) and in a specified geographic area (eg, a state or country).
|mesa1.Gasoline price and quantity demanded|
|Price (per gallon)||Quantity Demanded (millions of gallons)|
Ademand curveshows the relationship between price and quantity demanded on a graph like the one in Figure 2 below, with price per gallon on the vertical axis and quantity on the horizontal axis.Note that this is an exception to the normal rule in mathematics that the independent variable (x) is on the horizontal axis and the dependent variable (y) is on the vertical axis. Economics is different from mathematics!Also notice that each point on the demand curve comes from a row in Table 1. For example, the highest point on the demand curve corresponds to the last row in Table 1, while the lowest point corresponds to the first row.
Figure 2.A gasoline demand curve (derived from the data in Table 1).
The demand table (Table 1) shows that as the price increases, the quantity demanded decreases and vice versa. These points can then be plotted and the line connecting them is the demand curve (shown by line D in the graph above). The downward slope of the demand curve again illustrates the law of demand: the inverse relationship between price and quantity demanded.
The demand curve shown in Table 1 and the demand curve shown in the graph in Figure 2 are two ways of describing the same relationship between price and quantity demanded.
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The demand curve shows how much good people are willing to buy at different prices. Watch this video to see an example of oil demand. When oil prices are high, fewer people are willing to pay the high price, but some consumers, such as airplanes, are so dependent on using oil as a fuel that they are willing to pay a lot. Other low-value consumers tend to pay less for expensive oil because they can find substitutes or alternatives.
Demand curves will be slightly different for each product. They can appear relatively steep or flat, or they can be straight or curved. Almost all demand curves have the basic similarity of running from left to right. In this way, demand curves embody the law of demand: when price increases, quantity demanded decreases and, conversely, when price decreases, quantity demanded increases.
Demand x Quantity Demanded
In economic terminologydemandit's not the same asRequired quantity. When economists speak of demand, they mean the relationship between a set of prices and the quantities demanded at those prices, represented by a demand curve or schedule. When economists talk about quantity demanded, they only mean a specific point on the demand curve or a quantity on the demand schedule. In short, demand is related to the curve and quantity demanded is related to the (specific) point on the curve.
What factors influence demand?
We define demand as the quantity of a product that a consumerpreparejablebuy each onePreis. This suggests at least two factors besides price that affect demand. The "willingness to buy" indicates a desire to buy and depends on what economists call taste and preference. If you don't need or want something, you won't be willing to buy it. “Ability to buy” suggests that income is important. Teachers can usually afford better housing and transportation than students because they have higher incomes. The prices of related goods can also affect demand. For example, if you need a new car, the price of a Honda might affect your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater the need for clothing. The more children of driving age a family has, the greater the need for car insurance and the less need for diapers and baby food.
These factors are important both for an individual's demand and for the demand of the market as a whole. How exactly do these different factors affect demand, and how do we show the impact graphically? To answer these questions, we need themAll other things are the sameAssumption.
All other things are the sameassumption
Ademand curveo einssupply curve(which we'll discuss later in this module) is a relationship between two and only two variables: price on the vertical axis and quantity on the horizontal axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors change other than the price of the product. Economists call this assumptionAll other things are the same, a Latin expression meaning "on an equal footing". Any supply or demand curve is based on theAll other things are the sameeverything else is the same assumption. Therefore, a demand curve or a supply curve is a relationship between two and only two variables.if all other variables remain the same. All else being equal, the laws of supply and demand don't necessarily apply.
WHEN DOES ITALL OTHER THINGS ARE THE SAMETO USE?
All other things are the same applies when looking at how price changes affect demand or supply, butAll other things are the sameit can also be applied more generally. In the real world, supply and demand depend on more factors than price. For example, a consumer's demand depends on income and a producer's supply depends on the cost of producing the product. How can we analyze the impact on demand or supply when several factors change simultaneously, such as price increases and income reductions? The answer is that we look at changes one at a time and assume that all other factors remain constant.
For example, we can say that a price increase reduces the amount consumers buy (assuming income and everything else that affects demand doesn't change). Also, a drop in income reduces the amount that consumers can pay (assuming price and everything else that affects demand doesn't change). This is whatAll other things are the sameAcceptance means real. In this particular case, we can combine the results after analyzing each factor individually. The amount that consumers are buying is falling for two reasons: first, higher prices and, second, lower incomes.
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Watch this video to explain the theory of demand. Recall that, by the law of demand, all else being equal (All other things are the same):
- The lower the price of a product, the more people buy it.
- The higher the price of a product, the less people will buy it.
- All other things being equal:
- When we change a variable in a function (for example, demand for a product), we assume that everything else remains constant.
- the relationship between the price of a particular good or service and the quantity of that good or service that someone is willing and able to buy
- demand curve:
- a graphical representation of the relationship between price and quantity demanded for a particular good or service, with price on the vertical axis and quantity on the horizontal axis
- schedule required:
- a table showing the quantity demanded of a specific good or service over a range of prices
- law of demand:
- the common relationship in which a higher price leads to a lower quantity demanded of a given good or service and a lower price leads to a greater quantity demanded, with all other variables held constant
- what a buyer pays for a unit of the specific good or service
- Required quantity:
- the total number of units of a good or service that consumers are willing to buy at a given price
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