Assignment:
The "Law of Demand"
Brings us to one of the most important models in all of economic theory - The Market Process. As we alluded to, there really can't be a market unless we have at least two people who feel differently about a product or resource. If there is someone out there who values something you have at a greater value or price than you do. they represent the potential demand, because your possession of what they want means you represent a potential supply.
At the outset of this document I should first clarify that whenever you see these specific words (supply and demand) you will find it useful to also add the word curve, schedule or relationship to these terms. When the famous economist Alfred Marshall (pictured in this chapter in Section 3-3e) began describing these ideas back in 1890, the term "demand' wasn't used quite like it is in today's world. "Demand" is a term that is used by economists to describe a "the willingness to buy" of consumers, given a set of prices. Thus, the term demand as Marshall described it is entirely negotiable; this is different than the way we use the term today to describe an "all-or-nothing" or "do it or else" situation. Since economists have been describing the willingness to purchase this way for more than 100 years we really can't change the term now, but if we could a better word to use today would be "Desire".
All that said, the law of Demand" is a principle of human behavior that has been observed over the years over and over again; I put this idea in quotes here because it really isn't a law that Congress has passed, or legislation that some group of lawmakers has come up with. As the authors point out, the "law" states that there is an inverse (or negative) relationship between the price of a good or service and the quantity of it that consumers are willing to purchase. Thus the demand schedule represents, for any given quantity of output, the most (maximum price) that consumers are willing to pay for that quantity. Likewise, for any given price point, the demand schedule represents the maximum quantity of output that consumers are willing to buy at that price.
It is important to note here as well that demand schedules like the one illustrated in Exhibit 1 assumes ceteris paribus or "everything else held constant:' Think of this connection of price/quantity demanded data points as a demand curve (schedule) that is a snapshot in time; if anything else in the world except a good's own price changes, so too will the demand (curve) for that good. Here we see how the number of people ordering pizza delivery service increases as the price of the delivery service decreases. If anything else in the world except the price of the pizza delivery service changes then we will have to draw a new demand curve. That is to say that, if the demand for pizza delivery service increases we will see an increase in quantity demanded at each prim but if the demand for pizza delivery service decreases we will see a decrease in quantity demanded at each price.
You might take special note of the bold, italicized sentences in this section of the textbook. Unfortunately the failure to distinguish between a "change in demand" and a "change in quantity demanded" is one of the most common mistakes made by beginning economics students.
What is an example of (just) one thing in the world that could happen, which would likely result in an increase in the Demand for a specific good or service in the U.S., sold today by a specific firm that you can identify (by name)? (Please note that the one thing that cannot cause the Demand for a product to change would be for the price of the product itself to change - this only changes the quantity demanded of consumers).