Glamor Economics

Chapter 22

Chapter 4 Section 3 How Price Affects Demand—Demand

Demand refers to the amount of goods that consumers are willing and able to buy at a certain price level within a certain period of time.As a demand, there are two conditions: first, the desire to purchase; second, the ability to purchase, both of which are indispensable.The law of demand states that price and demand move inversely.The following interesting little story reflects the law of demand from one side.

In the 20s, Stanford University professor Paul?Elrich believes that due to population explosion, food shortage, consumption of non-renewable resources, environmental pollution and other reasons, the future of mankind is worrying; and Maryland State University professor Julian?Simon believes that the technological progress and price mechanism of human society will solve various problems in the development of human society, so the future of human society is still bright.They all have their supporters, forming two factions - the pessimists and the optimists.Because the public says that the public is right, and the mother-in-law says that the woman is right, no one can convince anyone, so I have to use time to test it.For this reason, they made a bet on whether the non-renewable resources will be exhausted.

If, as Elrich said, non-renewable resources will be exhausted one day, their prices will inevitably rise sharply; if, as Simon said, technological progress and the price mechanism will solve the problems of human society If there are various problems, their prices will not only not rise sharply, but will also fall.They selected 5 metals: chromium, copper, nickel, tin, and tungsten, and each bought an equivalent amount of $1000 in an imaginary way, $200 for each metal.Based on the prices of various metals on September 1980, 9, if by September 29, 1990, the prices of these five metals really increased after adjusting for inflation, Simon would lose and he would have to pay Elrich's total spread for these metals.Conversely, if the prices of the five metals fell, Elrich lost and he would pay Simon the total difference.After a long 9-year wait, things finally came to fruition: Simon won, and all five metals dropped in price.

Why did the prices of these five non-renewable resources drop?This is because there are substitutes for any resource in the world. When the price of these resources rises, people will be stimulated to develop and use their substitutes, and their demand will decrease. This is the law of demand.A decrease in demand will lower its price.For example, in the Bronze Age, people used copper to make utensils, copper pots, copper basins, copper swords and even mirrors and currency were also made of copper.Why are these things only seen in museums now?It is because with the advancement of science and technology, people have discovered many substitutes for bronze, such as iron pots and swords, plastic pots, glass mirrors, paper money, and so on.The demand for copper was greatly reduced, and the price fell.

When other conditions remain unchanged, the quantity we demand for a certain item and its price change inversely, which is the law of demand.Here are a few things to keep in mind when understanding the law of demand:
1. Other conditions remain unchanged means that other factors affecting demand remain unchanged. Without this premise, the law of demand cannot be established.For example, if income increases, the price and quantity demanded of the commodity itself will not necessarily change in opposite directions.

2. The law of demand refers to the law of general goods, but there are exceptions to this law, such as conspicuous goods and Giffen goods.

3. The law of demand reflects the inverse relationship between commodity prices and demand, which is formed by the joint action of the income effect and the substitution effect.

4. If the same fixed fee is added to the expensive superior commodity and the poor inferior commodity, then the expensive superior commodity will be relatively cheap. According to the law of demand, relatively cheap means that the demand will increase.

Let’s take a certain brand of chewing gum as an example. When its unit price is 1 yuan, you may consume 6 yuan. When the unit price is .5 yuan, you may buy 3 pieces. Will choose to buy his brand.We can organize this information about prices and purchase (demand) quantities into the following table:
A table of price and demand for a certain brand of chewing gum

Price (yuan) 11.522.5345
Demand (block) 6543210
We mark the numbers in the table on the figure and connect them to get a downward-sloping curve.We call this the "demand curve".The demand curve can appear with any switch, and the curve that conforms to the law of demand can only be downward sloping to the right.

[links to related words]

Demand refers to the purchasing power of consumers for commodities within a certain period of time.There are many factors that affect demand, mainly the income of consumers, the price of the commodity itself, the prices of other related commodities, and consumer preferences.

A demand curve is a curve that represents the functional relationship between the price of a good and the quantity demanded of that good.It shows the amount of the product that consumers are willing and able to buy at various possible prices within a certain period of time, other things being equal.

(End of this chapter)