0:00:01.033,0:00:04.787 In this video we're gonna talk about the law of demand 0:00:04.800,0:00:07.708 which is one of the core ideas of micro-economics. 0:00:07.708,0:00:10.522 And luckily for us, it is a fairly intuitive idea. 0:00:10.522,0:00:16.600 It just tells us that if we raise the price of a product, 0:00:16.600,0:00:21.615 that will lower the quantity demanded for the product. 0:00:21.615,0:00:23.738 The quantity demanded will go down, 0:00:23.738,0:00:25.870 and you can imagine the other side of that. 0:00:25.870,0:00:31.000 If we lower the price of a product, 0:00:31.000,0:00:36.856 that will raise the quantity demanded of that product. 0:00:36.856,0:00:40.333 And the law of demand says, just kind of generally 0:00:40.333,0:00:41.986 what we'll see in a few videos from now, 0:00:41.986,0:00:44.968 that there are some exceptions to this. 0:00:44.968,0:00:46.800 But to make this a little concrete, 0:00:46.800,0:00:49.899 let's think about the demand for a certain product. 0:00:49.899,0:00:52.000 And one thing I'm gonna clear here, 0:00:52.000,0:00:55.133 and I want to take great pains to not mess this up, 0:00:55.133,0:00:57.459 is that when we talk about the word DEMAND, 0:00:57.459,0:00:59.815 in a formal economic sense, 0:00:59.815,0:01:02.067 we're not talking about a quantity, 0:01:02.067,0:01:03.368 we're actually gonna talk "all else equal", 0:01:03.368,0:01:05.322 "ceterus perebus" 0:01:05.322,0:01:10.051 all the relationship between price and quantity demanded. 0:01:10.051,0:01:11.714 If we talk about an actual quantity, 0:01:11.714,0:01:14.092 we should say the quantity demanded. 0:01:14.092,0:01:18.151 So DEMAND vs QUANTITY DEMANDED, 0:01:18.151,0:01:19.975 these are two different things. 0:01:19.975,0:01:22.581 If it‘s a little confusing to you right now, 0:01:22.581,0:01:23.771 hopefully by the end of this video 0:01:23.771,0:01:25.658 the difference between demand and quantity demanded 0:01:25.658,0:01:27.320 will become a little bit clearer, 0:01:27.320,0:01:29.355 and definitely over the next few videos. 0:01:29.355,0:01:31.708 Because in this video we're gonna focus on, 0:01:31.708,0:01:34.864 how the quantity demanded changes relative to price. 0:01:34.864,0:01:38.000 In future videos we'll talk about how the entire relationship, 0:01:38.000,0:01:40.940 how demand changes based on different factors. 0:01:40.940,0:01:42.655 But to make things concrete, 0:01:42.655,0:01:47.712 let's say I'm about to release my science fiction book, 0:01:47.712,0:01:50.839 space whatever..I don't know...the book I want to release.. 0:01:50.839,0:01:54.940 So I'm gonna release some e-book, 0:01:54.940,0:01:56.518 And we've done some market study 0:01:56.518,0:01:58.793 or we just know how the price is 0:01:58.793,0:02:00.422 or how the demand is related to price, 0:02:00.422,0:02:02.338 or price is related to demand. 0:02:02.338,0:02:06.745 And we're gonna show that in a DEMAND SCHEDULE, 0:02:06.745,0:02:08.611 which is really just a table 0:02:08.611,0:02:09.702 that just shows 0:02:09.702,0:02:15.064 how the price... and actually I made my first mistake. 0:02:15.064,0:02:17.155 I just said how price relates to demand. 0:02:17.155,0:02:20.552 I should say how price relates to quantity demanded, 0:02:20.552,0:02:23.255 and how quantity demanded relates to price. 0:02:23.255,0:02:26.236 So a demand schedule, it shows 0:02:26.236,0:02:29.642 a relationship between price and quantity demanded. 0:02:29.642,0:02:31.640 ALL ELSE EQUAL. 0:02:31.640,0:02:36.250 So we're gonna have multiple scenarios here. 0:02:36.250,0:02:39.492 So this column is for scenarios. 0:02:39.508,0:02:41.488 This column let me put my price. 0:02:41.488,0:02:50.515 This column I put my quantity demanded. 0:02:50.515,0:02:52.149 So a scenario... 0:02:52.149,0:02:54.379 Let's call this a scenario A. 0:02:54.379,0:03:00.112 I could price my book at $2. 0:03:00.112,0:03:02.717 And I'll get a ton of people downloading it at that price. 0:03:02.717,0:03:05.759 So I will get 60,000 people 0:03:05.759,0:03:09.503 download my book at that price my e-book. 0:03:09.503,0:03:12.883 Scenario B, I could raise the price by $2. 0:03:12.883,0:03:17.291 So it's now at $4 and then that kills off a lot of the demand. 0:03:17.291,0:03:19.100 Now the quantity demanded goes down to 0:03:19.100,0:03:21.643 40,000 people downloading it. 0:03:21.643,0:03:23.372 Then I go to scenario C. 0:03:23.372,0:03:25.048 If I raise by another $2, 0:03:25.048,0:03:26.733 so now I'm at $6, 0:03:26.733,0:03:32.333 that lowers the quantity demanded to 30,000. 0:03:32.333,0:03:33.635 I will do a couple more of these. 0:03:33.635,0:03:37.338 Scenario D, I raise another $2. 0:03:37.338,0:03:39.768 So I get to $8 now. 0:03:39.768,0:03:44.337 Now the quantity demanded goes down to 25,000. 0:03:44.337,0:03:46.247 And I'll do one more of these 0:03:46.247,0:03:47.977 -See what color I haven't used yet- 0:03:47.977,0:03:49.604 -I haven't used yellow yet- 0:03:49.604,0:03:52.826 Scenario E, I raise it to $10. 0:03:52.826,0:03:59.714 Now the quantity demanded let's just say it is 23,000. 0:03:59.714,0:04:02.802 So this relationship, 0:04:02.802,0:04:05.244 this shows the law of demand right over here. 0:04:05.244,0:04:06.767 And this table that shows, 0:04:06.767,0:04:09.384 how the quantity demanded relates to price and vice versa. 0:04:09.384,0:04:11.528 This is what we call the DEMAND SCHEDULE. 0:04:11.528,0:04:14.800 Now we can also, based on this demand schedule, 0:04:14.800,0:04:16.299 draw a DEMAND CURVE. 0:04:16.299,0:04:18.203 We're really just gonna plot these points and 0:04:18.203,0:04:20.720 draw the curve that connects them 0:04:20.720,0:04:23.372 because these aren't the only scenarios. 0:04:23.372,0:04:24.656 Anything between them is also possible. 0:04:24.656,0:04:26.093 We could charge $2.01 for the book. 0:04:26.093,0:04:28.313 We could charge $4.50 for the book. 0:04:28.313,0:04:31.267 And so that‘s what the demand curve captures a little bit better, 0:04:31.267,0:04:34.026 because it’s a continuous curve and not just 5 points. 0:04:34.026,0:04:35.813 So let's do that. 0:04:35.813,0:04:37.101 Let’s graph it. 0:04:37.101,0:04:39.438 And this is one of those conventions of economics 0:04:39.438,0:04:41.277 that I am not a fan of, 0:04:41.277,0:04:45.513 because people often talk about changing the price 0:04:45.513,0:04:48.824 and how the quantity demanded changes from that. 0:04:48.824,0:04:51.457 And in traditional...in most of math and science, 0:04:51.457,0:04:52.400 the thing that you're changing 0:04:52.400,0:04:54.593 you normally put on the horizontal axis. 0:04:54.593,0:04:58.118 So if I was in charge of the convention of economics 0:04:58.118,0:05:02.102 I would plot price on the horizontal axis right over here. 0:05:02.102,0:05:03.944 But the way it's done typically 0:05:03.944,0:05:06.343 is that price is done on the vertical axis. 0:05:06.343,0:05:07.969 So you're used to seeing it 0:05:07.969,0:05:09.740 in kind of the traditional class environment. 0:05:09.740,0:05:10.980 I'll do the same. 0:05:10.980,0:05:13.345 So we'll put price in the vertical axis 0:05:13.345,0:05:21.396 and we'll put quantity demanded in the horizontal axis. 0:05:21.396,0:05:23.821 And now the quantity demanded goes all the way up to 60,000. 0:05:23.821,0:05:29.748 So that's a 10..20..30..40..50..60 0:05:29.748,0:05:31.817 So it's 10 ... this is in thousands 0:05:31.817,0:05:38.265 20...30...sorry not 45...40...50 and 60 0:05:38.265,0:05:41.489 and this is in thousands. 0:05:41.489,0:05:43.866 And the price goes up to $10 0:05:43.866,0:05:45.101 from $2 to $10. 0:05:45.101,0:05:55.333 Let's say this is 2..4..6..8 and 10. 0:05:55.333,0:05:57.664 So let's plot the scenarios. 0:05:57.664,0:06:00.741 So Scenario A, price is $2 0:06:00.741,0:06:03.105 60,000 units are demanded. 0:06:03.105,0:06:06.002 That is Scenario A, right over there. 0:06:06.002,0:06:09.184 Scenario B, when the price is $4, 0:06:09.184,0:06:11.450 40,000 units are demanded. 0:06:11.450,0:06:15.038 $4, 40,000 units that's right over there. 0:06:15.038,0:06:16.392 That's Scenario B. 0:06:16.392,0:06:25.647 Scenario C, $6, 30,000 units. 0:06:25.647,0:06:28.897 Scenario D, $8, 25,000 units. 0:06:28.897,0:06:32.827 $8, 25 is right about there. 0:06:32.827,0:06:36.158 That looks like 25,000 right in between. That's close enough. 0:06:36.158,0:06:39.968 So that right over there is Scenario D. 0:06:39.968,0:06:41.846 And then finally Scenario E, 0:06:41.846,0:06:46.706 $10, 23,000 units. 0:06:46.706,0:06:49.187 So that would be something like that. 0:06:49.187,0:06:51.080 That is Scenario E. 0:06:51.080,0:06:53.711 And so we can actually have prices anywhere between them 0:06:53.711,0:06:55.029 and maybe we can go even further. 0:06:55.029,0:06:56.744 So this right over here. 0:06:56.744,0:06:58.560 So if I were to draw the demand curve, 0:06:58.560,0:07:00.609 it could look something like this. 0:07:00.609,0:07:03.546 A demand curve would look something, 0:07:03.546,0:07:06.899 -I'm trying to do my best to draw a straight continuous line- 0:07:06.899,0:07:08.937 could look something like that. 0:07:08.937,0:07:10.994 It could keep going on and on. 0:07:10.994,0:07:13.990 And so these are two ways to show demand. 0:07:13.990,0:07:16.103 So I'm just going back to what I said earlier. 0:07:16.103,0:07:20.908 The quantity demanded is, all else equal, for a given price, 0:07:20.908,0:07:23.267 how many units people are willing to download 0:07:23.267,0:07:25.626 or buy of my e-book. 0:07:25.626,0:07:30.366 When we talk about the demand itself, 0:07:30.366,0:07:33.023 we're talking about this entire relationship. 0:07:33.023,0:07:34.523 So this demand itself, 0:07:34.523,0:07:36.410 is this entire demand schedule. 0:07:36.410,0:07:37.591 Or another way to think of it is, 0:07:37.591,0:07:39.293 is this entire demand curve. 0:07:39.293,0:07:42.813 If demand were to change, 0:07:42.813,0:07:45.118 we would actually have a different curve. 0:07:45.118,0:07:46.702 This curve would shift 0:07:46.702,0:07:49.672 or the entries in this table would shift. 0:07:49.672,0:07:52.018 If the quantity of demand changes, 0:07:52.018,0:07:53.422 we move along this curve. 0:07:53.422,0:07:54.865 When you hold everything else equal 0:07:54.865,0:07:57.277 and you only change price. 0:07:57.277,0:07:58.921 So hopefully that makes that clear. 0:07:58.921,0:08:01.106 When everything else is equal 0:08:01.106,0:08:02.542 and you're only changing price, 0:08:02.542,0:08:04.080 you're not changing demand. 0:08:04.080,0:08:05.780 You're changing the quantity demanded. 0:08:05.780,0:08:07.967 The demand, because everything else is equal, 0:08:07.967,0:08:09.615 is this relationship. 0:08:09.615,0:08:10.746 In the next few videos, 0:08:10.746,0:08:12.249 we'll think about what does happen, 0:08:12.249,0:08:16.000 when you do change some of those other factors.