DeMaND IT BEGINS!!!

Is demand = want?

Recall: What is wANT??? A desire for something

WHAT IS DeMAND??? Do you like lemon tea? How many are you going to buy in a week? Please copy the following table into your notebook, and fill in according to your will. (Think about first how much money do you have in a week.)

Quantity you are willing and able to buy in a week Price ($/unit) Quantity you are willing and able to buy in a week 8 7 6 5 4 3 2 1

Draw a diagram using the data you’ve input. Label the vertical axis – Price Label the horizontal axis – Quantity (demanded) Put all the points/coordinates (P, Qd) on the graph, and link all the points and lable the curve – D (which means this is a demand curve)

DeMAND: An entire plan of purchase of a good of a consumer → The quantity of a good or service that a consumer is willing and able to buy at different prices over a period of time, ceteris paribus (other things being constant, 其他因素不變)

Want = Desire Demand = Desire (Want) + Ability Thus, want = demand

DeMAND/effective deMAND Wants Effective demand + purchasing power

Demand is a desire backed up by purchasing power A desired quantity and NOT necessarily the amount actually succeed in buying

Want or demand? Study the figures carefully and answer the questions. I’ve got $12. When the price of an egg tart is $12, I’m willing and able to buy one. At $6 per piece, I’m willing and able to buy two. At $3 per piece, I’m willing and able to buy four… Study the figures carefully and answer the questions. I want to eat egg tarts but I don’t have any money！ Ben Joey

1 Does Ben have a want or a demand for egg tarts? Briefly explain. Want or demand? 1 Does Ben have a want or a demand for egg tarts? Briefly explain. Ben has a want for egg tarts, but no demand for egg tarts Because he does not have any money, and hence, no purchasing power

2 Does Joey has a want or a demand for egg tarts? Briefly explain. Want or demand? 2 Does Joey has a want or a demand for egg tarts? Briefly explain. Joey has a demand for egg tarts. Because she has the ability to buy egg tarts at different prices.

Assumptions The demand curve assumes several things in the model: That a competitive market exists That there is perfect knowledge That goods in the market talked about are homogenous (no qualitative difference) 14

Individual demand → The quantity of a good or service that a consumer is willing and able to buy at different prices over a period of time, ceteris paribus (other things being constant) How can we show our individual demand?

Individual demand schedule (需求表) A table which shows the overall relationship between P and Qd of a consumer over a period of time This is my individual demand schedule for egg tarts. Price ($) Qd per week (Piece) 10 1 8 2 6 3 4 5

Individual demand curve (需求曲線) A curve which illustrates the data of an individual demand schedule 1 2 3 4 5 Quantity / Week 10 – 8 – 6 – 4 – 2 – Price ($) – D  An individual demand curve

Market demand → The quantities of a good or service that all consumers in the market are willing and able to buy at different prices over a period of time, other things being constant. → The sum of individual demand of all consumers

Individual demand schedule Market Demand schedule The sum of all individual demand schedules Suppose there are only three people in the market of egg tarts… Price ($) Individual demand schedule Joey’s Qd per week (Piece) Andy’s Qd per week (Piece) Ben’s Qd per week (Piece) 10 1 2 3 8 4 6 5 7 Market Demand schedule + + = 6 9 12 15 18

Market demand Curve A curve which illustrates the data of a market demand schedule 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Quantity / Week 10 – 8 – 6 – 4 – 2 – Price ($) – Horizontal summation (橫向相加) 2 3 4 3 4 5 Dm Joey Andy Ben  A market demand curve

Law of demand Law of demand (需求定律) asserts that over a period of time, ceteris paribus (other things being constant), Price  → Quantity demanded  Price  → Quantity demanded 

There is a negative relationship (correlation) between price and quantity Translation: People buy ________ of a commodity when its own price falls. People buy ________ of a commodity when its own price rises. Is this correlation always true???

Demand curve: Downward sloping from left to right → A negative relationship between P and Qd P → Qd P → Qd Q1 Q0 Price ($) Quantity / Week P1 P0 D  Q0 Q1 Price ($) Quantity / Week P0 P1 D 

The store understand that consumers act according to the law of demand. That is, if the prices (P) of the TV sets are lowered, the quantities demanded (Qd) will increase → this helps to increase sale.

Ceteris Paribus The law says, under ceteris paribus, an increase in price (P) will lead to a decrease in quantity demanded (Qd), vice versa Ceteris Paribus – all other things remain constant Why do we need Ceteris Paribus??? Incomes can change Prices of other goods can change. Tastes can change. This curve is downward sloping (from left to right) and CONVEX!!!

Movement on the Demand Curve. Make sure you use proper economic words!!! Contraction- moving to the left on the demand curve. Extension- moving to the right on the demand curve. Quantity Demanded-

Revisit the law of demand According to the law, P↑ → Qd↓ ,ceteris paribus, vice versa Price means relative price What is RELATIVE price?

Relative price Vs Nominal price Nominal price - Price on the price tag is only the Relative price – price in terms of other goods

Example Nominal price of an orange: $2 Nominal price of an apple: $4

In other words, the relative price of ONE APPLE is TWO ORANGES 1 ═ 2

If the nominal price of an orange ↑ to $4 and there is no change in the price of an apple What is the relative price of ONE APPLE? 1 ═ ?

The relative price of ONE APPLE is ONE ORANGE 1 ═ 1

Although the prices of both apple and orange are the SAME (= $4) Now, relatively cheaper! Relatively expensive!!

Thinking Time!! So, why is there an increase in quantity demanded when the price of a good falls???

There are two reasons: Income Effect If the price of a good ↓ and your income remains the same. This also means your real income has increased, so you can now buy more goods. (Your income allows you to now buy more goods than before!!!)

Substitution Effect Since the prices of alternative goods (substitutes) remain unchanged, so the good becomes relatively more attractive. Why?

Remember D curve can be curved or linear (straight line) Not necessarily touch the axes Negatively sloped from left to right (unless illustration of special cases) Qd ≠Demand Willingness reflects the preferences Ability reflects the income constraints consumers confront

Answer the following questions in your notebook: Q1. Does demand increases as price decreases? When the price of Gold Shark Chocolate decreases, people’s demand for it will increase. Joey has mixed up the concepts of demand and quantity demanded… Dr.E Joey

Q2. What is the cause-effect relationship in the law of demand? Andy, you have taken cause for effect… The law of demand states that a decrease in the Qd for a good will result in an increase in its price over a period of time, and vice versa, other things being constant. Andy Dr.E

Q3. Why should the ceteris paribus condition be held in the law of demand? Ben, you are wrong… We need not assume other factors being constant when applying the law of demand. Ben

Q1. Does demand increases as price decreases? When the price of Gold Shark Chocolate decreases, people’s demand for it will increase. Joey has mixed up the concepts of demand and quantity demanded… Dr.E Joey

Demand： → The entire plan of purchase of a consumer → The quantities of a good or service that a consumer is willing and able to buy at different prices over a period of time, other things being constant. Quantity demanded： → The quantity of a good or service that a consumer is willing and able to buy at a given price over a period of time, other things being constant.

The law of demand → other things being constant, a decrease in price → an increase in quantity demanded

Q2. What is the cause-effect relationship in the law of demand? Andy, you have taken cause for effect… The law of demand states that a decrease in the Qd for a good will result in an increase in its price over a period of time, and vice versa, other things being constant. Andy Dr.E

The law of demand: An increase in the price of a good will result in a decrease in Qd over a period of time, and vice versa, other things being constant. Price changes → Qd changes Cause: A change in price Effect: A change in Qd

Q3. Why should the ceteris paribus condition be held in the law of demand? Ben, you are wrong… We need not assume other factors being constant when applying the law of demand. Ben

Applying the law of demand → Identify clearly the relationship between the price and Qd of a good If the ceteris paribus condition does not hold, → we cannot analyze how a price change affects the Qd

What is trying to be said??