 In terms of just the standard definition, demand is simply a relationship between hypothetical prices for a good or a service and the quantity demanded of that good or a service. Now we can express demand in terms of a single individual or a group of individuals. We might call it the market. But again, at its most fundamental level, demand is not some real scary concept. It's hard to understand. Demand is very simple. It's just a relationship. It's a mapping. It just says, give me a list of possible prices for the good or service and then I'll tell you what the quantity demanded is. Meaning, how many units of that good or service does the individual or the group of people want to buy at that price? So that's all demand is. And we're going to be pretty particular in this course. I'm going to stress that if you just use the word demand, that means the entire relationship. So that means the whole list of possible prices and the corresponding list of quantities demanded at each of those hypothetical prices. So what it means when we express demand, we're holding everything else equal. And that's really what we're doing with supply and demand curves in general, or I should say supply and demand in general, because the curve is just a particular way of illustrating them graphically, is that we're trying to think through how prices are formed on a marketplace. And so we're isolating conceptually the influence of everything else except the price on how much people want to buy and how much people want to produce. And so with demand, I'm just repeating myself here, we're going to hold everything else constant because there are all sorts of things that would influence how much a person wants to buy of a particular good or service, how many units. And one possible factor is the thing's price. And so when we drop a demand schedule, which is just this relationship between the prices and the quantities, again, what we're doing is we're saying let's hold all those other things fixed for the moment. And we'll just alter hypothetically the price and see how the quantity demanded changes in response to that price change. So I think at this point the best way to continue is to start working with a particular numerical example. So in your book it's on page 148 where I start talking about demand. And then on 149 we get into a particular example and it has to do with Jennifer and her demand for gasoline on a Tuesday afternoon. And the reason I made it such a particular title to say Jennifer's demand for gasoline on Tuesday afternoon is I'm trying to get you to see that this is just a snapshot. Strictly speaking, somebody's demand schedule would only even be true, only applicable for a fleeting moment because we're holding all these other things equal. So we're saying on this particular Tuesday afternoon we assess Jennifer and her situation and then we ask hypothetically speaking for various prices of gasoline how many gallons would she want to buy? And so you can see on the table at $5 a gallon she'd want zero gallons. At $4 a gallon she would also want zero. But at $350 all of a sudden she buys 1.5. At $3 she would buy 2.5 and so on. And then it maxes out at 14.7 gallons. So if the price is a dollar that's what it hits. And if the price falls even further to 50 cents a gallon still Jennifer just wants to buy 14.7 gallons. So the story that I had in mind here is that Jennifer has enough gas in her car to be able to get home and go out the next day if she wants to. And so that's why if it's really expensive then she's not going to stop and get gas. She's driving by and she sees that there's a price of $5 or $4 a gallon posted. She's going to think that's unusual that's more expensive than I would expect it to be. There's no way I'm going to stop right now and put more gas than when it's that expensive. Whereas if it's price is a little bit lower than that now she starts to think oh okay and she stops and gets some gasoline and given how big her tank is and how much gas she's got in there the most she can put in is 14.7 gallons. That's the assumption I was making in this story when I came up with those numbers. So that's why no matter how cheap the gas gets she's not going to buy more than 14.7 gallons because that's the most she can put into her car. Even if for some reason she was driving by and it were free for some reason the gas station owner was giving away gas the most she would get is just filling up her tank which would be 14.7 gallons. So the only real rule that these numbers obeyed is what's called the law of demand. And that says that as something gets cheaper as price goes down the quantity demanded either stays the same or increases. So notice if something gets cheaper the law of demand does not say the person has to buy more it just says the person can't buy less. Let me say that in a different way. The only way to really violate the law of demand would be if something got cheaper and the person bought fewer units or going the other way if something got more expensive and now the person wanted to buy more units that would violate a straightforward interpretation of the law of demand. Now let me spend just a minute on this particular point what do I mean when I call it the law of demand? Some economists view that merely as an empirical tendency they're going to say that in general the law of demand is satisfied. Other economists are going to say no it has to be true the logic of what it means to desire a good and so on it has to be the case that if the thing becomes cheaper other things equal you would want to either buy the same amount or buy more. Now let me give you a particular example that might throw it off just so you can see the contrasting approaches and how the different economists would interpret the same real world example that's sort of odd to fit in this framework. Suppose that there's some kind of designer handbag that women like that's very fashionable and you can imagine that if this designer handbag is $200 that women, certain types of women would want to buy various units of it and so you can imagine what the quantity demanded would be like maybe a thousand women would want to buy one unit of that handbag each at $200 and now the price drops down to $20 and you say well how many people want to buy it it's conceivable you could imagine that actually maybe barely anybody wants to buy it now because the fact that it's being sold for $20 maybe that's a signal that this thing is a knock off and that this can't be the real item and that because it's so cheap now it's no longer a designer item if it's only $20 and that means anybody could get this thing and so it loses its appeal so part of why the women wanted it initially it wasn't just that it was the physical characteristics of it and how good it would be at holding their money and their credit cards and things like that it was that the fact that it was $200 meant something that was part of its appeal that it was a little bit out of the price range for a person and that only women who really wanted to make a fashion statement would spend the money to be carrying around this particular handbag so you can imagine in that kind of a story that those could be the actual outcomes so notice in that hypothetical story we were saying as the price of that handbag went down the quantity demanded also went down so the question is does that violate the law of demand and I'm saying some economists would say yes it does that's what the law of demand is supposed to be other economists who want to say no the law of demand just has to be true just think through the logic of it when you understand how economics works it has to be true they would say no what's going on in odd cases like that is other things aren't equal and that the handbag that they could get for $200 psychologically what it means to the person is one thing if that same physical item is not only $20 it's a different thing it's a different good the fact that people don't want to buy as many units of that that doesn't have anything to do with the law of demand because the law of demand says other things equal and you're supposed to be talking about the same good so the fact that people would not be willing to buy as much hamburger at a lower price per pound they'd be willing to buy steak at a higher price per pound that has nothing to do with the law of demand obviously because those are clearly different goods and so somebody who really wants to just say the law of demand cannot be violated ever the way they would handle that weird case like the one I just went through with the handbag is they would say well no technically it's a different good because what makes it a good is how the person subjectively appraises it and for some goods the price itself is a component of what makes it a good for that person okay so I'm not going to take a stand on that particular controversy for our purposes I just wanted to make you aware of it the important thing is that you know the law of demand means as the price goes down people demand either the same or more units of the good now if we move on through the textbook we can see on the next page page 150 what I've done is I've supplemented Jennifer's hypothetical demand schedule for gasoline with those of a bunch of other individuals and in the text I walk through the story sort of justifying the numbers that I made there and so for some of these people you can see that they might buy a lot of units as the price gets lower that some people might not just be driving along and fill up their car but they might even go home and get some big canisters or whatever and put gasoline in there assuming that's legal because they realize what a great deal that is alright so there's different people would respond differently to the prices whereas somebody else who maybe is on an interstate trip for work and that person has to pull off the interstate to go to the gas station to fill up because he's going to run out of gas that person is going to be very insensitive to the price and so you might not see that person's quantity demanded changing very much at all even as the price gets really high ok so the point is everybody though in this table is obeying the law of demand but I'm trying to get you to see how much each person buys at various prices is still different and the way their quantities change depending on changes in the price can also be different but it still is true that everybody is obeying the law of demand so you have the two pronged thing there that there's still subjectivism here everybody's tastes are different people have different desires for gasoline so somebody who just rides bikes all day whatever the price of gas is that person's going to buy zero ok so everyone's demands are different in principle but just to keep things straight forward I'm not having anybody violate the law of demand in this example and then the final column of this table is just the market and that's just simply for each hypothetical price you sum up the individual quantities demanded to come up with what's the market quantity demanded and so now we can talk about what's the market demand so if you understand it at an individual level it's pretty simple just to aggregate it to the market level so that the market demand for gasoline don't be intimidated by that phrase it's just saying at hypothetical prices how many total gallons does everybody in the market want to buy at that hypothetical price and so again the market demand is just a relationship so remember demand is not a number demand is a relationship of hypothetical prices on the one hand to hypothetical quantities on the other and then finally I draw a demand curve using these specific numbers and so that's just plotting out the relationship so it's taking the same information that we had in the tabular form and it's making it into a diagram plotting the prices and the quantities in the XY plane and then the last thing we do in this section on demand is I just explain to you why typically we draw sort of just generic curves or even more generically just a line when we talk about what's the demand curve in a standard blackboard diagram and I explained that it's not because of realism that if you're going to talk about realism an actual demand curve that is plotting hypothetical prices against quantities would look jagged and it wouldn't be a nice smooth curve at all that there's no reason to expect it to be smooth the only thing we would probably expect is that it would be downward sloping and so that's something I should stress that if the law of demand is obeyed in the empirical sense then plotting the demand curve would make it look downward sloping because if lowering the price makes it either the same quantity or a greater quantity will then plotting it with price on the Y axis and quantity on the X axis that just means it's going to be a downward sloping relationship but when we just draw standard generic supply and demand curves we don't draw jagged looking things we draw nice smooth ones and like I say, typically what we do as economists is just actually draw straight lines and the reason for that is a lot of times our arguments don't depend on the specific numbers all we really need to show is if demand is downward sloping and then we're going to see a supply is upward sloping and we have an initial equilibrium and we change one thing we just want to know what direction does that move price and quantity and so for that kind of argument it just makes it easier graphically to do straight lines so don't be confused, when we draw those straight lines it's not because there's any pretense that they're realistic, they're not it's just that for the purposes of our argument what we're using the diagram for we might as well just draw a straight line to keep the thing simple the last point I want to make on this topic is in reality we can never know what the demand schedule is or the demand curve actually is either for an individual or for the market as a whole you might say, well no couldn't we just observe it over time today the price of gasoline is $3 a gallon let's see how many gallons were purchased tomorrow the price drops to 295 we'll see how many gallons are purchased and now we've got two points to plot on our demand curve our market demand curve well you could do that but actually it's not strictly speaking correct because between today and tomorrow other things have changed it's not just the price of gasoline dropped from $3 to 295 other things may have changed between today and tomorrow that would also affect how many gallons of gasoline people want to buy and so you wouldn't want to assume that the change in the quantity demanded was driven solely by that drop in price from $3 to 295 so ideally in principle what demand means is right now hold everything else constant it's a snapshot in time at these various hypothetical prices what would the people want to buy how many units would people want to buy and in principle you can't know that all you can ever directly observe is what's the actual price right now what's the actual amount people are buying and also it's the last little caveat as we'll see in later chapters if there's for some reason an interference with the market so the market isn't clearing and we'll understand what that term means later on then you can't even observe how much people want to buy you can observe what people do buy but if there's a lot of people trying to buy something and only some of them get their desire satisfied then you can't even just count up how many units were sold to figure out what the quantity demanded is because some people may have gone away empty handed alright so even in principle individual demand and market demand is actually a hypothetical concept but nonetheless it's still very useful in organizing our thoughts and explaining the impact of changes from the demand and the supply side