Microeconomic principles: Demand

2.2 Demand

Activity

Principles of Microeconomics: "Chapter 3, Section 1: Demand"

• Read this section to learn about the theory of demand. Attempt the "Try It" problem. Use the data from the text to practice constructing and drawing the demand curve on your own, either on a paper or in Excel. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. This reading also covers the topics outlined in subunits 2.2.1 and 2.2.2.

Khan Academy: "Law of Demand”

• Watch this video about the law of demand.

The demand curve

The demand curve shows the relationship between the price of a good and the quantity demanded at each price. The demand curve is negatively sloped because of the inverse relationship between price and quantity demanded. For example, assuming that the ceteris paribus condition applies, i.e., all other factors affecting demand remain unchanged, if the price of an iPhone drops, what do you think will happen to the demand for the iPhone? Conversely, if the price increases, would more people be buying the iPhone or less.

Changes in demand

Pay special attention to movement along the curve versus shifts of the curve. The former refers to changes in the quantity demanded due to price changes. The latter refers to the breakdown of the ceteris paribus condition. In order to understand shifts in demand curve, you need to know that price remains constant and the shift of the demand curve is in response to changes in other factors that affect demand, including changes in the prices of related goods, changes in income, changes in tastes, and changes in expectations.

The resulting effect is that a rightward shift of the curve indicates an increase in demand and signifies that at any given price, consumers demand a larger quantity of the good than before, while a decrease in demandrefers to a leftward shift of the curve and signifies that at any given price, consumers demand a smaller quantity of the good than before.

Activity

Khan Academy: "Price of Related Products and Demand"

• Watch this video about the price of related products and demand.

Khan Academy: "Changes in Income, Population, or Preferences"

• Watch this video about changes in income, population, and preferences.

Khan Academy: "Normal and Inferior Goods"

• Watch this video about normal and inferior goods.

Khan Academy: "Inferior Goods Clarification"

• Watch this video about inferior goods clarification.