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Video transcript

in this video we're going to talk about the law of demand which is one of the core ideas of microeconomics and lucky for us it's a fairly intuitive idea it just tells us that if we raise the price if we raise the price of a product that will lower the quantity demanded for the product quantity demanded will go down and you can imagine the other side of that if we if we lower the price of a product that will raise the quantity demanded the quantity demanded of that product and the law of demand says this is just kind of generally what we'll see in a few videos from now is that there are some exceptions to this but to make this little concrete let's think about the demand for a certain product and one thing I want to clear here and I'm gonna take go through great pains to not mess this up is that when we talk about the word demand in an economic sense in a formal economic sense we're not talking about a quantity we're actually going to talk all else equal ceteris paribus ceteris paribus all the relationship between price and quantity demanded if we talk about an actual quantity we should say the quantity demanded so demand versus quantity quantity demanded these are two different things and if it's a little it's a little confusing to you right now hopefully by the end of this video the difference between demand and quantity demanded will become a little bit clearer and definitely over the next few videos because in this video we're gonna focus on how the quantity demanded changes relative to price in future videos we'll talk about how the entire relationship how demand changes based on different factors but to make things concrete let's say I'm about to to to release my science fiction book is space whatever I don't know whether the book that I want to release so I'm gonna release some ebook I'm going to release some ebook and we've done some market study or we just know how the price is or how the demand is related to price where the price is related to MIT the demand and we're gonna show that in a demand schedule demand schedule which is really just a table that just shows how the the price and actually I just I made my first mistake I just said how price relates to demand I should say how price relates to quantity demanded and how quantity demanded relates to price so demand schedule a demand schedule it shows a relationship between price and quantity demanded all else equal so let's so we're gonna have some multiple we're gonna have multiple scenarios here so this column let me do my scenarios this column let me put my price and this column I put my quantity demanded quantity demanded quantity demanded so scenario let's call this scenario a I could price my book at two dollars I could price my book at two dollars and I'll get a ton of people downloading it at that price so I will get sixty thousand people download my book at that price my eBook scenario be I could raise the price by $2 so it's now four dollars and then it that kills off a lot of the demand now the quantity demanded goes down to 40,000 people downloading it then I could go to scenario see if I raised by another two dollars so now I'm at six dollars now that raised that lowers the quantity demanded to 230 thousand I'll do a couple more of these scenario D scenario D I raise another two dollars so I get to eight dollars now now the quantity demanded goes down to 25,000 and I'll do one more of these let's see what color have I not used yet I haven't used yellow yet scenario II if I raise it to ten dollars now the quantity demanded let's just say is let's just say it is twenty three thousand so this relationship between this this shows the law of demand right over here and this table that shows how the quantity demanded relates to price and vice versa this is what we call a demand schedule now we can also based on this demand schedule draw a demand curve and really we're going to plot these points and and and draw the curve that connects them because we don't have to just these aren't the only scenarios anything in between as possible we could charge two dollars in one set for the book we could charge 450 for the book and so that's what the demand curve captures a little bit better because it's a continuous curve not just five points so let's do that let's graph it and this is one of those conventions of economics that I am NOT a fan of because people often talk about people often talk about changing the price and how the quantity demanded changes from that and in traditional and most of math and science the thing that you're changing you normally put on the horizontal axis so my if I was in charge of the convention of economics I would I would plot price on the horizontal axis right over here but the way it's done typically is that price is done on the vertical axis and so you are used to seeing it in kind of a traditional class environment I'll do the same so we'll put price in the vertical axis and we'll put quantity demanded quantity demanded in the horizontal in the horizontal axis and our quantity demanded goes all the way up to sixty thousand so that's to see this 10 20 30 40 50 60 so it's 10 this is in thousand 20 30 40 sorry not 45 40 50 and 60 and this is in thousands this is in thousands and then the price goes up to ten dollars from two to ten dollars so let's say this is 2 4 6 8 and 10 2 4 6 8 and 10 so let's plot the scenarios so scenario a price is $2 60,000 units are demanded that is scenario a right over there scenario B when the price is $4 40,000 units are demanded four dollars 40,000 units and it's right over there that scenario B scenario C $6 30,000 units $6 30,000 units right over there scenario C scenario D $8 25,000 units $8 25 is right about there that looks like 25,000 right in between that's close enough so that right over there is scenario D Sen air d and then finally scenario e $10 23 units $10 23,000 units so it might be something like that that is scenario e and so we could actually have prices anywhere in between that and maybe we could even go further so this right over here so if I were to draw the demand curve it could look something like this the demand curve would look something I'm trying to do my best to draw it as a straight continuous line could look something like that and it could keep going on and on and so these are two ways to show demand so just going back to what I said earlier the quantity demanded is all else equal for a given price for a given price how many units people are willing to download or buy of my eBook when we talk about when we talk about the demand itself when we talk about the demand itself we're talking about this entire relationship so this demand itself is this entire demand schedule or another way to think of it is this entire demand curve if demand were to change if that man were to change we would actually have a different curve this curve would shift or the the entries in this table would shift if the quantity of demand changes so we move along this curve when you hold everything else equal and you only change price so hopefully that makes that clear when when when everything else is equal and you're only changing price you're not changing demand you're changing the quantity demanded that the demand because everything else is equal is this relationship in the next few videos we'll think about what does happen when you do change some of those other factors