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  • 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 of a product,

  • that will lower the quantity demanded for the product.

  • Quantity demanded will go down.

  • And you could imagine the other side of that.

  • If we lower the price of a product,

  • that will raise the quantity demanded of that product.

  • And the law of demand says this 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 going to go through great pains

  • to not mess this up, is that when

  • we talk about the word demand in a formal economic sense,

  • we're not talking about a quantity.

  • We're actually going to talk, all

  • else equal, ceteris paribus, the relationship

  • between price and quantity demanded.

  • If we talk about an actual quantity,

  • we should say the quantity demanded.

  • So demand versus quantity demanded.

  • These are two different things.

  • And if 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 going to focus on how the quantity demanded changes

  • relative to the 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 release my science fiction

  • book, Space Whatever.

  • I don't know, the book that I want to release.

  • So I'm going to release some ebook.

  • And we've done some market study,

  • or we just know how the demand is related to price

  • or the price is related to demand.

  • And we're going to show that in a demand schedule, which

  • is really just a table that just shows how the price-- and,

  • actually I just 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, it shows a relationship between price

  • and quantity demanded, all else equal.

  • So we're going to have multiple scenarios here.

  • So this column, let me do my scenarios.

  • In this column, let me put my price.

  • In this column, I put my quantity demanded.

  • So scenario, let's call this scenario A.

  • I could price my book at $2.

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

  • So I will get 60,000 people download my book

  • at that price, my ebook.

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

  • So it's now $4.

  • And that kills off a lot of the demand.

  • Now the quantity demanded goes down

  • to 40,000 people downloading it.

  • Then I can go to scenario C, if I raise it by another $2.

  • So now I'm at $6.

  • Now that lowers the quantity demanded to 30,000.

  • I'll do a couple more of these.

  • Scenario D, I raise another $2.

  • So I get to $8 now.

  • Now the quantity demanded goes down to 25,000.

  • And I'll do one more of these.

  • Let me see, what color have I not used yet.

  • I haven't used yellow yet.

  • Scenario E, if I raise it to $10,

  • now the quantity demanded, let's just say, is 23,000.

  • So this relationship 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 just going to plot these points

  • and draw the curve the connects them.

  • Because these aren't the only scenarios.

  • Anything in between is possible.

  • We could charge $2.01 for the book.

  • We could charge for $4.50 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 changing the price,

  • and how the quantity demanded changes from that.

  • And in traditional-- in most of math and science, the thing

  • that you're changing, you normally

  • put on the horizontal axis.

  • So if I was in charge of the convention of economics,

  • 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're 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 in the horizontal axis.

  • And our quantity demanded goes all the up to 60,000.

  • So let's see, that's 10, 20, 30, 40, 50, 60.

  • So that's 10-- this is in thousands-- 20, 30, 40-- sorry,

  • not 45-- 40, 50, and 60.

  • And this is in thousands.

  • And then the price goes up to $10, from $2 to $10.

  • So let's say this is 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.

  • And that's right over there.

  • That's scenario B.

  • Scenario C, $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.

  • And then finally scenario E, $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, how many units people are

  • willing to download or buy of my ebook.

  • 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, we would actually

  • have a different curve.

  • This curve would shift, or 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 it clear.

  • When everything else is equal, and you're only changing price,

  • you're not changing demand, you're

  • changing the quantity demanded.

  • 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.

In this video, we're going to talk about the law of demand,