ECON: Law of Demand
Good morning/evening/night readers! First of all, I want to apologize for not posting here and being too disappeared; I am extremely overwhelmed and I promise to be more committed and engaged. However, this does not matter and shall focus on ECONOMICS!
I have been thinking about how our econ “course“ would work and I conclude that of course, I should start by introductory contents because in most schools is not taught Economics, I guess.
Lasts posts, I wrote only much theoretical information in order to preface, so let's get into the economic world! In our discussions, I will write economics ideas according to my learning in books, websites, and online courses. Later, I can recommend these sources if you want to understand more elaborate situations. On the other hand, I can possibly make a mistake because I have never taken classes in a conventional way.
Then, our first topic is the law of demand that is considered one of the most essential tools to understand from the daily decisions to the global economy, consequently, it includes macro and especially microeconomics (as we have already discussed).
What is Demand and Quantity Demanded?
Demand is formally defined as an economic principle that associates the willingness and desire of consumers to obtain a good or service at a certain price and time. In other words, when we analyze the demand, we investigate if an individual would buy a product at a specific price or no; then we can interpret how an individual would behave in a particular situation.
Conversely, the quantity demanded is the total amount of goods, services, and products that consumers demand over time. Simply, while quantity demanded suffers from price variation, the demand is the whole set which correlates the quantity demanded with the price.
Additionally, we need to understand the essential idea of demand: if the price rises, the quantity demanded will decrease, and if the price declines, the quantity demanded will increases. So, this an inverse relationship, because imagine a consumer buying a certain good, if the price increase, his desire of buying this will decrease and he likely not buy. This would affect many people, consequently, lowing the quantity demanded and vice-versa. For me, it is very nice to examine the demand and price associations, isn't it?
If you did not comprehend this relation, it is fine. In order to make sure, I will tell a little story. Suppose in a certain neighborhood where people are willing to pay $400 on a TV, on average. So let's consider three situations that the TV price changes.
(I)-Price of the TV is $200: certainly, almost everyone will want to buy it because the price decreases, so the quantity demanded will increase enormously.
(II)-Price of the TV is $400: many people are disposed to buy as it is the price average; however, a few will not purchase (remember this is a medium, some are below or above $400). Consequently, the quantity demanded will increase but less than the hypothesis (I).
(III)-Price of the TV is $600: very few people will pay for this new price; then, the quantity demanded will decrease a lot.
Conclusion about these circumstances: as the price decrease, the quantity demanded will increase because there are more people that can afford this price, and when the price rises, the effect is contrary.
Let's plot a demand graphic!
I have been too excited to discuss about graphs! All the next graphics is from https://www.econgraphs.org/
First, the demand graph can be a curve or straight. We are going to focus on curves. Let's analyze this graphic below!
So, the x-axis is the quantity demanded and the y-axis is the price; this is kind of a convention: price x quantity demanded. Note that as the x-axis increases, the y-axis decreases. From an economic perspective, we notice that while the price rises, the quantity demanded drops.
Shall we investigate the graphics from the previous three situations from the story about the TV price?
(I): When the price is $200, the quantity demanded is 2,000
(II): When the price is $400, the quantity demanded is 1,000
(III): When the price is $600, the quantity demanded is 250
Therefore, after this example with graphs, we can ensure and demonstrate the fundamental of demand, which is the inverse correlation between prices and quantity demanded: when the price rises, the quantity demanded will decrease. This association can likely help us as a consumer and as producers/entrepreneurs. In the next post, I will write about factors that can affect the demand, so do not forget to check our blog in the next weeks.
Thank you for reading this article so far! Feel free to contact me either in the section 'Contact us' or on Instagram if you have any doubts. Do not forget to subscribe to our blog and follow us on Instagram (@meep.blog). 'See you' next weeks!
Luigi
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