The Demand Curve — Transcript

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1. 0:00♪ [music] ♪
2. 0:11- [Narrator] Supply and demand are fundamental concepts
3. 0:14in economics.
4. 0:15Usually, they're represented by a graph like this.
5. 0:19So what does this mean?
6. 0:20Well, let's start with the demand curve.
7. 0:24In short, a demand curve shows how much of a good people will want
8. 0:28at different prices.
9. 0:30What happens when there's a big sale?
10. 0:32Well, at a lower price, people buy more.
11. 0:35More shirts, more pants, more video games,
12. 0:38and they do stuff like this.
13. 0:40This is what happens on Black Friday
14. 0:42when retailers lower their prices to get people
15. 0:44to buy stuff for Christmas.
16. 0:46The demand curve illustrates the intuition for why people
17. 0:49go nuts on Black Friday.
18. 0:51Price is shown on the vertical axis,
19. 0:53and quantity is shown on the horizontal.
20. 0:55Here's the normal price,
21. 0:57and here's the Black Friday reduced price.
22. 1:00Simply put, the quantity demanded increases as the price gets lower.
23. 1:06But let's delve a little deeper.
24. 1:07There's a different demand curve for every good
25. 1:09or service out there, but the ideas are the same.
26. 1:12So, let's look at the demand curve
27. 1:14for one of the most important products in the world -- oil.
28. 1:18Oil is used in a wide variety of products,
29. 1:21from fueling cars and planes, to heating homes and making plastic
30. 1:24for rubber duckies.
31. 1:26Looking at the demand curve for oil,
32. 1:27we see a familiar relationship between price
33. 1:29and the quantity demanded.
34. 1:31At a high price, $55 per barrel, there's a relative low demand,
35. 1:35let's say five million barrels.
36. 1:37At $20 per barrel, 25 million barrels are demanded.
37. 1:41As the price goes down, the demand for oil increases.
38. 1:45And at $5 per barrel, 50 million barrels of oil
39. 1:49are demanded.
40. 1:50But, there's more to why the demand curve
41. 1:52looks like this.
42. 1:54As we mentioned before, oil has many uses.
43. 1:56Some of those are high-value uses.
44. 1:58Uses for which oil has few substitutes.
45. 2:01An example would be jet fuel.
46. 2:04Right now, you can't fly jets on corn or natural gas.
47. 2:07If you want planes that fly, you're stuck with using oil.
48. 2:11Other uses are low-value uses like making gasoline
49. 2:14or plastic for these guys.
50. 2:17When oil prices are relatively low, the oil that is being demanded
51. 2:20is used for high and low-value goods alike.
52. 2:23As the price of oil goes up, so does the price
53. 2:26of making plastic and gasoline.
54. 2:28And at some point, the cost of these value used products
55. 2:30will get high enough that some people might skip buying
56. 2:34a rubber ducky altogether or buy a substitute
57. 2:36like a wooden bath toy.
58. 2:38Same goes for gasoline, as the price rises,
59. 2:40people will economize.
60. 2:42They'll buy more fuel efficient cars
61. 2:44or forego that road trip completely.
62. 2:46For these consumers, the benefit of buying
63. 2:49these products is too little to justify the cost.
64. 2:52At these high prices, the demanders that are left
65. 2:55are the ones who value oil the highest.
66. 2:57For them, the benefit of, say, having planes that fly
67. 3:00outweighs the increased cost.
68. 3:03They still demand oil.
69. 3:04So, with a simple line, the demand curve summarizes
70. 3:08all the many and diverse ways that people respond
71. 3:11to a change in price.
72. 3:14But, it doesn't stop here.
73. 3:16If you want to test yourself, click "Practice Questions."
74. 3:20Or if you're ready to move on, just click "Next Video."
75. 3:24♪ [music] ♪