WEBVTT

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In this video we're gonna talk about the law of demand

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which is one of the core ideas of micro-economics.

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And luckily for us, it is a fairly intuitive idea.

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It just tells us that if we raise the price of a product,

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that will lower the quantity demanded for the product.

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The quantity demanded will go down,

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and you can imagine the other side of that.

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If we lower the price of a product,

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that will raise the quantity demanded of that product.

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And the law of demand says, just kind of generally

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what we'll see in a few videos from now,

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that there are some exceptions to this.

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But to make this a little concrete,

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let's think about the demand for a certain product.

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And one thing I'm gonna clear here,

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and I want to take great pains to not mess this up,

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is that when we talk about the word DEMAND,

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in a formal economic sense,

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we're not talking about a quantity,

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we're actually gonna talk "all else equal",

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"ceterus perebus"

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all the relationship between price and quantity demanded.

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If we talk about an actual quantity,

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we should say the quantity demanded.

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So DEMAND vs QUANTITY DEMANDED,

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these are two different things.

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If it‘s a little confusing to you right now,

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hopefully by the end of this video

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the difference between demand and quantity demanded

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will become a little bit clearer,

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and definitely over the next few videos.

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Because in this video we're gonna focus on,

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how the quantity demanded changes relative to price.

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In future videos we'll talk about how the entire relationship,

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how demand changes based on different factors.

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But to make things concrete,

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let's say I'm about to release my science fiction book,

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space whatever..I don't know...the book I want to release..

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So I'm gonna release some e-book,

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And we've done some market study

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or we just know how the price is

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or how the demand is related to price,

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or price is related to demand.

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And we're gonna show that in a DEMAND SCHEDULE,

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which is really just a table

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that just shows

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how the price... and actually I made my first mistake.

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I just said how price relates to demand.

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I should say how price relates to quantity demanded,

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and how quantity demanded relates to price.

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So a demand schedule, it shows

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a relationship between price and quantity demanded.

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ALL ELSE EQUAL.

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So we're gonna have multiple scenarios here.

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So this column is for scenarios.

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This column let me put my price.

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This column I put my quantity demanded.

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So a scenario...

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Let's call this a scenario A.

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I could price my book at $2.

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And I'll get a ton of people downloading it at that price.

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So I will get 60,000 people

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download my book at that price my e-book.

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Scenario B, I could raise the price by $2.

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So it's now at $4 and then that kills off a lot of the demand.

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Now the quantity demanded goes down to

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40,000 people downloading it.

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Then I go to scenario C.

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If I raise by another $2,

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so now I'm at $6,

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that lowers the quantity demanded to 30,000.

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I will do a couple more of these.

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Scenario D, I raise another $2.

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So I get to $8 now.

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Now the quantity demanded goes down to 25,000.

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And I'll do one more of these

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-See what color I haven't used yet-

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-I haven't used yellow yet-

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Scenario E, I raise it to $10.

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Now the quantity demanded let's just say it is 23,000.

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So this relationship,

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this shows the law of demand right over here.

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And this table that shows,

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how the quantity demanded relates to price and vice versa.

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This is what we call the DEMAND SCHEDULE.

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Now we can also, based on this demand schedule,

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draw a DEMAND CURVE.

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We're really just gonna plot these points and

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draw the curve that connects them

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because these aren't the only scenarios.

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Anything between them is also possible.

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We could charge $2.01 for the book.

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We could charge $4.50 for the book.

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And so that‘s what the demand curve captures a little bit better,

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because it’s a continuous curve and not just 5 points.

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So let's do that.

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Let’s graph it.

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And this is one of those conventions of economics

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that I am not a fan of,

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because people often talk about changing the price

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and how the quantity demanded changes from that.

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And in traditional...in most of math and science,

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the thing that you're changing

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you normally put on the horizontal axis.

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So if I was in charge of the convention of economics

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I would plot price on the horizontal axis right over here.

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But the way it's done typically

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is that price is done on the vertical axis.

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So you're used to seeing it

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in kind of the traditional class environment.

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I'll do the same.

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So we'll put price in the vertical axis

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and we'll put quantity demanded in the horizontal axis.

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And now the quantity demanded goes all the way up to 60,000.

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So that's a 10..20..30..40..50..60

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So it's 10 ... this is in thousands

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20...30...sorry not 45...40...50 and 60

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and this is in thousands.

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And the price goes up to $10

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from $2 to $10.

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Let's say this is 2..4..6..8 and 10.

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So let's plot the scenarios.

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So Scenario A, price is $2

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60,000 units are demanded.

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That is Scenario A, right over there.

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Scenario B, when the price is $4,

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40,000 units are demanded.

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$4, 40,000 units that's right over there.

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That's Scenario B.

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Scenario C, $6, 30,000 units.

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Scenario D, $8, 25,000 units.

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$8, 25 is right about there.

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That looks like 25,000 right in between. That's close enough.

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So that right over there is Scenario D.

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And then finally Scenario E,

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$10, 23,000 units.

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So that would be something like that.

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That is Scenario E.

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And so we can actually have prices anywhere between them

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and maybe we can go even further.

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So this right over here.

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So if I were to draw the demand curve,

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it could look something like this.

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A demand curve would look something,

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-I'm trying to do my best to draw a straight continuous line-

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could look something like that.

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It could keep going on and on.

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And so these are two ways to show demand.

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So I'm just going back to what I said earlier.

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The quantity demanded is, all else equal, for a given price,

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how many units people are willing to download

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or buy of my e-book.

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When we talk about the demand itself,

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we're talking about this entire relationship.

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So this demand itself,

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is this entire demand schedule.

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Or another way to think of it is,

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is this entire demand curve.

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If demand were to change,

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we would actually have a different curve.

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This curve would shift

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or the entries in this table would shift.

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If the quantity of demand changes,

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we move along this curve.

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When you hold everything else equal

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and you only change price.

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So hopefully that makes that clear.

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When everything else is equal

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and you're only changing price,

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you're not changing demand.

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You're changing the quantity demanded.

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The demand, because everything else is equal,

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is this relationship.

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In the next few videos,

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we'll think about what does happen,

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when you do change some of those other factors.