Demand Lecture Notes

What do economists mean by “demand.?”

For us regular folks, the term “demand” is used to describe the amount desired at a point in time. If sales for
an item go up, we say the “demand” increased. But economist want to know if a price change caused the
change in sales. If the price went down and the sales went up, economists say the “quantity demanded”
increased, not the demand. Economists define demand as all the quantities demanded at all the possible
prices. For each item during a specific time period, each price has an associated quantity demanded. For the
economist, demand refers to the entire collection of quantities demanded, each being associated with a
specific price. If the price changes, the quantity demanded changes. But, for the economist, this is not a change
in demand.

For the economist, a change in demand requires a change in all the quantities demanded. With an increase in
demand, each of the quantities demanded has increased. With a decrease in demand, all the quantities
demanded have decreased. With a change in demand, each price has a new quantity demanded. When all the
quantities demanded have changed, economists call this a change in demand. But what causes a change in
demand (a change in all the quantities demanded at all the prices)?

While a change in the price of a good changes the quantity demanded, a change in price does not change all
the quantities demanded, so a price change does not cause a change in demand. A factor other than price
must change for the demand to change. What is a change in demand? A change in all the quantities demanded
at all the prices. What might cause an increase in demand (an increase in the quantity demanded at every
price)? If consumer income rises, people can afford to buy more of a good and therefore the quantity
demanded will rise at every price. Regardless of where price settles at any given time, the quantity demanded
will be higher than it was before.

What else can increase demand (increase the quantity demanded at every price) for a particular good?

A change in consumer preference can change demand. If consumers suddenly become more enamored with a
product, the quantity demanded will increase at every price. Regardless of where price settles at any given
time, the quantity demanded will be higher than before. What has happened? Consumers have increased their
valuation of the item, so that the quantity demanded is higher, regardless of price. If an item becomes more
fashionable and popular, consumer preference for that item increases and the quantity demanded at each
price increases, which, of course, is an increase in demand.

Is there anything else that can increase demand for a product (increase the quantity demanded at every
price)?

A change in the price of an item that is highly related to a product can change the demand for that product.
Some products are related because they are substitutes. Consider butter and margarine, which are viewed as
readily available and acceptable substitutes. If some who generally prefers butter sees that the price of butter
has risen considerably, that person is very likely to reach over and pick up margarine, which is viewed as an
acceptable substitute for butter by most consumers. An increase in the price for butter will cause an increase
in the demand for margarine.

Another relationship between products is that of complementary status. Products are complements when one
is used each time the other is used. Consider DVD and DVD players. If a consumer buys a DVD player, she will
certainly buy DVDs. What can cause an increase in the demand for DVDs? A change in the price of its
complement—the DVD player. If the price of the DVD player falls, the demand for DVDs will rise, because the
cost of watching DVDS has now fallen.

So, for the economist, the concept of a change in demand is limited to a situation where all the quantities
demanded changed at every price. A change in the product price will just cause a change in one quantity
demanded, it will not change all the quantities demanded. Therefore, a change in the price a product will not
change its demand.

Imagine Joe walks into a new mall and is greeted at the door by a survey taker working for a small shop selling
delicious chocolate covered pretzel nuggets, a favorite of Joe. The employee offers Joe one of the large and
tasty treats, which Joe finds quite satisfying. The employee asks Joe how many he would buy if the price was
$5, and Joe says one. Well, how many would you buy if the price was $4, the employee asks, and Joe says 2.
How about if the price was $3 and Joe replies he would buy 3. Joe says he would purchase 4 at $2 and 5 of the
nuggets at $1. The data gathered by the survey taker appears in the table below.

Price Quantity Demanded of Pretzel Nuggets

$5 1
$4 2
$3 3
$2 4
$1 5

The table represents Joe’s demand schedule, which is just a table listing the quantity demanded at each price.
For economists, this is Joe’s demand. His demand is not 1 or 5 or 3 or 4 or 2, although his quantity demanded
can be any one of these depending on the price. At $4, his quantity demanded is 2 and at $2, his quantity
demanded is 4. But his demand is the entire schedule. If someone asks Joe what his demand is for these
nuggets, he would have to say, ”Well, at $5, it is 1 but at $4, it is 2, and at $3 it is 3, while at $2 it is 4 and at $1
it is 5. “ His detailed response indicates his demand.

Imagine that the surveyor writes down Joe’s responses on a small card and gives it to Joe to keep in his wallet.
The next week Joe visits the mall and finds out the current price of the delicious nuggets is $5, so he buys one.
The next week he buys two when the price falls to $4. The following week the price falls again to $3, so Joe
buys 3. The week after that the price falls to $2, so Joe purchases 4 and the fifth week, the price is only $1, so
Joe buys 5. All the time, the little card with his demand is safely tucked into his wallet. Did his demand change
over the five-week period as he purchased a different amount each week? No, the demand did not change. All
the information on the card stayed the same and that information constitutes Joe’s demand. A change in the
price of the nuggets did not change his demand.

If the price of nuggets does not change someone’s demand for the nuggets, what does change demand? Again,
demand, as defined by economists is all the quantities demand at all the prices. Joe’s demand for the tasty
chocolate nuggets is given in his demand schedule. All the information in the schedule represents his demand.
So, for his demand to change, all the quantities demanded must change. All of them.

If the price of nuggets does not change Joe’s demand, what might change it? A change in his preferences for
nuggets. Imagine Joe walks into the little store a month after doing the survey and sees a little sign on the
window of the shop he had not noticed before. The sign reveals that the nuggets contain super healthy
ingredients, which Joe highly prizes. Joe’s preference for the little nugget has changed. He values the nuggets
more and, therefore, his quantity demanded will increase at every price. The table below, called a demand
schedule, shows his old quantities demanded and new quantities demanded.

Price Original Quantity Demanded New Quantity Demanded

$5 1 2
$4 2 4
$3 3 6
$2 4 8
$1 5 10

The store clerk writes down Joe’s new quantities demanded at every price and Joe puts this new card in his
wallet. What has happened? His demand has gone up. That is, his quantity demanded at every price has risen.
Economists restrict the term “increase in demand” to only reflect an increase in the quantity demanded at
every price. For economists, an “increase in demand” does not mean a new single quantity demanded at a new
price. If the store changes the price, Joe will change his quantity demanded to match that price as his demand
schedule indicates. However, the information on the card in his wallet will not change, therefore, his demand
is not changing. A change in the price of a good will not change its demand. A change in the price of a good
only changes the quantity demanded.

Application to Learning

We can consider that learning can be conceived of in terms of demand. Most students have a quantity
demanded of learning that varies as the price of learning varies. The “price” of learning can be viewed as the
loss of time that can be devoted to other activities. Students with more participation in extracurricular school
or outside activities have less time to devote to study. As the price of learning falls (as the amount of time
devoted to other activities falls), the quantity demanded of learning will rise for many students.

Time
Devoted Demand for Learning
Other
Activities

Quantity Demanded of Learning

Biblical Insight

The Bible contains numerous verses warning Christians to be on guard against excessive striving for material
goods.

Luke 12:15 states:

Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions.

In Matthew 6:33, Jesus states:

But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you.

References

Coppock, Lee, Mateer, Dirk. (2014). Principles of Microeconomics . New York: W. W. Norton.

Gwartney, J. D., Stroup, R., & Studenmund, A. H. (1980). Economics, private and public choice. New York:
Academic Press.

McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies. Boston:
McGraw-Hill Irwin.

Mankiw, N. G. (2016). Principles of microeconomics (8th ed.). CENGAGE Learning Custom Publishing.