TLDR;
This lecture introduces the concept of demand in economics, covering its definition, determinants, and the demand function. It emphasizes the importance of desire, ability, and willingness in creating demand, and explains how factors like price, related goods, income, and consumer preferences affect demand. The lecture also touches on different types of goods (inferior, normal, luxury, necessity) and various psychological effects on consumer behavior.
- Demand requires desire, ability, and willingness to pay.
- Determinants of demand include price, related goods, income, and consumer preferences.
- Different types of goods (inferior, normal, luxury, necessity) are affected differently by income changes.
- Psychological effects like bandwagon, snob, Veblen, and demonstration influence consumer behavior.
Introduction to Demand [0:00]
The lecture starts with an introduction to the economics segment, focusing on Chapter 2, which covers demand and elasticity of demand. The instructor outlines that the unit will take two to three classes to complete, aiming to cover the entire unit within the week. The goal is to keep pace with both accounts and economics.
What is Demand? [1:03]
Demand is defined from a consumer's perspective and requires three key elements: desire, ability, and willingness. Desire refers to wanting to buy something, ability means having the financial means to purchase it, and willingness involves being ready to spend the money. Demand is always stated at a specific price and is considered over a period of time, making it a flow concept rather than a point-in-time measure.
Determinants of Demand: Price and Related Goods [4:18]
Several factors influence demand, with price being the most significant. An inverse relationship exists between price and demand: as price increases, demand decreases, and vice versa. Related goods are categorized into substitutes and complements. Substitute goods can be used in place of each other (e.g., tea and coffee), while complementary goods are used together (e.g., car and fuel). A price increase in a substitute good increases the demand for the original good, showing a positive relationship. Conversely, a price increase in a complementary good decreases the demand for the original good, indicating an inverse relationship.
Determinants of Demand: Income of Consumers [10:05]
Income affects demand differently based on the type of good. Inferior goods see decreased demand as income increases, showing an inverse relationship. Normal goods experience increased demand with higher income, indicating a positive relationship. Luxury goods only see increased demand at very high-income levels. Necessity goods maintain a relatively constant demand regardless of income changes.
Determinants of Demand: Test and Preferences [13:19]
Test and preferences are influenced by four effects: bandwagon, snob, Veblen, and demonstration. The bandwagon effect occurs when consumers buy something because everyone else is, driven by a fear of missing out. The demonstration effect involves copying others, such as buying a product because friends have it. The snob effect is the opposite, where consumers avoid products that are popular. The Veblen effect is when higher prices increase demand, typical for luxury goods.
Determinants of Demand: Consumer Expectations and Other Factors [16:47]
Consumer expectations about future prices also impact current demand. If prices are expected to rise, current demand increases; if prices are expected to fall, current demand decreases. Other factors include population size, national income distribution, credit availability, government policies, external conditions, and consumer habits.
Demand Function [18:48]
The demand function illustrates the relationship between the quantity demanded of a good and the factors that influence it. Quantity demanded is the dependent variable, while factors like price and income are independent variables. The demand function shows how demand depends on these various factors.
Conclusion and Next Steps [20:23]
The lecture concludes by setting the stage for the next session, which will cover the law of demand. Students are encouraged to review the material and read from the institute's resources. The instructor plans to complete the chapter in a total of three classes.
