Hi folks,  Chace here again.  We're going to
jump into Hubbard chapter 3, which is on
supply and demand, and this will probably
be in multiple parts.. so let's call this
part one... and we're going to tackle the
demand side.   I want you to recognize that
supply and demand is really the model
that is supposed to be explaining where
we're getting prices from, and prices of
course are critical, because as Smith
described, this is how people know what
to do.  This is where information comes
from inside of an economy that's
organized with a market.  So let's jump
right in.  When we're talking about demand
you will see it sometimes in the form of
a demand schedule, you will see it
graphically with a curve, and I want you
to distinguish between demand and
quantity demanded. Quantity demanded
we're going to find out is a specific amount
that people would be interested in at a
specific price.  So let's start with
schedules first, or a demand table you'll
sometimes hear it called.  You can have
the price of a good and we can also talk
about the quantity that folks would
demand at any given price.  So we can
start out with watches and we could say
that a watch is going to cost $300... and
if $300 is what a watch costs, then you
may have two million people that want
that watch.  However, if watches go up to $400
a watch you might find that there are
now only 1.5 million people who are
interested in that watch.  This is
essentially a demand schedule and it is
showing the relationship between P and Q,
quantity demanded in this case.  Now of
course each of these represent a data
point that you could turn around and
graph.  I'm going to put quantity on the
horizontal axis and put price on the
vertical axis.
And at price 300 we know that folks were
interested in two million watches.  OK, if
we raise the price to 400 people all of
a sudden only wanted 1.5 million.  What
you can see here is that you could start
connecting together all of the possible
prices and quantities that exist and you
will get yourself eventually to a demand
curve.  This demand curve it's going to be
downward sloping we'll talk about why
that is
on the next slide.  Ok,  lots of you are
probably thinking that the demand curve
is obviously downward sloping and
there's nothing really that needs to be
explained there other than common sense.
If you're feeling that way about it I
think that's just fine, but for the sake
of learning some of the formal lingo,  I
want you to recognize that the law of
demand states that as price rises
quantity demanded is going to fall. And
you can think about that for a couple of
different reasons.  One they call the
income effect, because as prices go up if
your income hasn't changed your income
buys less for you, so you'd want less of
the product. The other
thing that we can talk about is the
substitution effect, which basically
shows that as the price rises other
goods whose price haven't risen now look
relatively cheaper; therefore, you'd
probably want less of the good whose
price has risen. This was called the
substitution effect some people make a
big deal out of those,  I actually think
that they're useful at times ,but really
not that big of a deal.  So the law of
demand implies an inverse relationship
between price and quantity demanded, and
I'm going to draw this demand curve here
as a downward sloping curve, the way
you'd normally expect a demand curve
to look.  Ok, so let's distinguish between
movements along and shifts. Movements
along are going to be caused by a change
in the price of the good in question.. and if
you're looking at this graphically... what
we're talking about is a change in the
price of the good in question-- and that
implies that there should be a change in
the quantity demanded that we would want.
okay?
So the movement from this point we'll
call it A to this point here B, this is a
movement along caused by change in the
price of the good in question.  Now what
we're seeing with the movement along is
the relationship between price and
quantity.  However, there's a whole bunch
of other things that are relevant for
discussion about demand.  We're going to
talk about these shifts, but I want to
show you what one of them would look
like graphically first.  A shift is
going to be a move of the entire curve, 
so we're going to go from D 0 to D 1... and
you might be going alright what does
that mean?....what it means is that at any
given price you actually now are going
to request a higher quantity than you
used to. 
We're going to  refer to this as an increase in
demand, and I want you to realize right
away that anytime we move a curve to the
right this is going to be an increase.  If
we move that same curve to the left, then
we are dealing with the exact opposite
and leftward shifts are going to be
decreases. 
OK, left decrease --right increase --nail
that down right away and it's going to be a
little weird because most of the time
you're used to looking at a graph... and
you are accustomed to seeing...you're
accustomed to reading it up and down
along this vertical axis.  In this case
with supply and demand we're constantly
going to be reading from left to right.
Demand curve goes to the right and Q
increases.  Okay, so what are those
things that are actually going to cause
the demand curve to shift around.  The
fancy way of describing them is a
non-price determinant.  More often than
not they're just referred to as shift factors, 
and we've got five of them here that I'd
like you to know by heart.. we can expand
on this later in the course if you like.
Tastes and preferences are the most
obvious one, and of course if people are
going to see an increase in tastes for a
particular object, then we would expect
to see that there's going to be an
increase in demand for that object.
Income we're going to actually have to
distinguish between normal and inferior
goods.  Income we're going to represent as
a Y.  And normal Goods if
we see an increase in income we expect
to see that there is an increase in
demand, it's just defined as such.
Inferior goods if we see that same
increase in income we are going to
expect that there is a fall in demand.
Instant noodles are a good example of
inferior goods..uh, frozen burritos, fast food,
anything that looks less attractive as
people make more money,
whereas, square-footage in housing,
apartments, cars, clothing, all of these
things have a tendency to be normal
goods. People make more money they want
more of them.   A third one is the price of
related goods and we're going to talk
about two different kinds of ways Goods
can be related.  They can be related as
substitutes,
and I want you to think of substitutes
as an "or"... what I mean by that is you're
going to go to the store and you are
thinking about buying lemons OR limes.
If lemons have gone up in price, you're
going to demand more limes, (right? It
it's an OR).  Complements we're thinking
about something like cereal and milk
if cereal gets more expensive you're not
going to want to buy the cereal if the law
of demand holds, and if you're not going
to want to buy the cereal then you may
not have any need for the milk.
Complements work like such, hence, the
price of a complement rising means that
the demand for the good in question will
fall,  whereas, the price of a substitute
rising means that the demand for the
good in question will rise.   Population is
pretty straightforward if population or a
specific relevant demographic increases
then we're going to expect to see an
increase in demand.  Expectations are sort
of an interesting one, consumers have
expectations about future prices and
those expectations about future prices
change how they behave in the present. So
as an example every time a Democratic
president has been elected to office
there's been a general panic that access
to firearms or bullets would be
restricted, and people with that
expectation freak out and they run and
they buy tons and tons of bullets and
guns.  You can see evidence with this with
news clips where people are literally
coming out of sporting goods stores and
they bought a pallet full of bullets.  Now
interesting thing about this was after
the last president was elected..
Democratic president... there were no real
significant changes in gun control, so
the people were wrong about their fears--
but that's not the important point.  The
important point is that they were acting
differently based on their expectations,
so if you believe that prices will rise
in the future then of course that means
that you're going to demand less and
present. So keep that in mind. OK, so
let's run through a couple of real quick
examples.  First thing that I want you to
remember... right work shift means increase
in demand... leftward shift means decrease
in demand.  OK so if Adele tells
everyone
that the reason she is wonderful and
have such a nice voice is because she
eats mangoes every day, then you might
imagine that the demand for mangoes
would jump suddenly, which means that at
any given price people all of a sudden
now want a whole lot more quantity.. that's
an increase in demand that one is
based on tastes and preferences.  If we go
to the store and we find out that the
price of eggs has risen and we want to
know what's going to happen to bacon,
and demand for bacon.  
If eggs are more expensive we're less
likely to buy eggs...and if we are less likely
to buy eggs, then we're of course less
likely to buy bacon-- demand for bacon is
going to fall. Okay so there's one that's
a complement. You can also look at
population if you have a baby boom and
there's a ton more infants that have
been born, then that population going up
is of course going to lead to higher
demand for diapers let's say.  This will
give you a rightward shift in the demand
curve.
So very important ..right means an
increase ....left means a decrease. Later on
we're going to have to put supply and
demand together to be able to talk about
what's happening with price, because it's
going to depend on both of those curves.
But it's essential you know what to do
with either one of these curves, demand
or supply. I think that will do it for
right now
let's leave this at just the demand
stuff the next lecture we'll pick up
with the supply
