Law of demand | Supply, demand, and market equilibrium | Microeconomics | Khan Academy
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Law of demand | Supply, demand, and market equilibrium | Microeconomics | Khan Academy


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.

About James Carlton

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47 thoughts on “Law of demand | Supply, demand, and market equilibrium | Microeconomics | Khan Academy

  1. Increase price doesn't nec. decrease demand.
    There are qualitative, need and desire, and other psychological factors such as: future look on price, overhead capacity, etc.
    Don't listen to this man and his free academy.

    Lol.

  2. Your simple explanation of why you find it confusing that P is on the Y axis just cleared everything up. Teachers always spoke about the price as if it was a determinant and I was so confused. Bizarre how something so simple can ruin the whole concept if left unexplained.

  3. You have the math correct and the economics incorrect. Price is always a dependent variable (vertical axis), determined by the ratio of goods given (including money) to goods received. You described an "asking price" not a price. (Also, distinct from a bid or offer price.) Also, you can never know a demand schedule in advance. You can only hypothesize about demand based on experience.

  4. Khan Academy: "Making up for all the damage done by shitty teachers everywhere". Thanks for the videos, they are making my academic life so much easier!

  5. Whenever i watch educational youtube videos, i always see people saying all shitty things about the people teaching above. Im sorry youtube megalomanic, i would believe 4 degrees this guy have instead of you.

  6. People say there is a RACE problem. People say this RACE problem will be solved when the third world pours into EVERY and ONLY into White countries.
    People say the only solution to the RACE problem is if ALL and ONLY White countries "assimilate," i.e., intermarry, with all those non-Whites.

    But if I tell that obvious truth about the ongoing program of genocide against White people, Anti-Whites agree that I am a naziwhowantstokillsixmillionjews.

    Anti-racist is a codeword for anti-White.

  7. Thank you so much for this great explanation! As a person with a science degree, and 25 years interpreting non-business graphs, this whole dependent and independent variable thing in my first microeconomics course has been troublesome. I also appreciate your emphasis on demand vs quantity demanded, a very important distinction often not highlighted well by texts or professors.

  8. KEY TERMS IN THIS VIDEO:

    1. The Law of Demand: Price and demand are related to each other
    2. Demand Curve: The way economists measure the relationship between price and quantity demanded in an object

  9. Thank you so much! got an exam for econ tmr, i was really confused at first, but then after watching your video, i'm clear with it! thank u !

  10. great video, my only criticism would be that you should have mentioned expansion and contraction which is actually the only real reason why the chart is relevant.

  11. it bothered me in high school that price was he vertical axis and never made sense to me! just saying.

  12. the graph is certainly strange. at first glance, that graph would tell me that "as the quantity demanded increases, price decreases"

  13. Could you please re explain the difference between demand and quantity demand as well as what they both mean? I don't quite understand. Thank you 🙂

  14. Like the video, but quite a graph you got there in the example – at some point price increase doesnt result in falling quantity demanded 😉 I wish it would work this way in a real world…

  15. Thanks for this I'm having my licensure board examination tomorrow in agricultural economics.. This helps a lot 💕

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