Demand
First Law of Demand
Law of Demand:
There is an inverse relationship between price and quantity demanded
Derivation of the Law of Demand
The Law of Demand derives from the Law of Diminishing Marginal Utility:
Each additional unit of a homogenous stock of goods is worth less than the previous unit
What happens to your demand for shirts as the price decreases?
Shift in Quantity Demanded
Price
Quantity (Ounces)
$10
8
4
12
$8
$12
Shift in Quantity Demanded
(of Ounces of Steak)
Determinants of Demand �(the factors that determine the shape and position of the demand curve)
“When we say that a person’s demand for anything increases, we mean that he will buy more of it than he would before at the same price... A general increase in his demand is an increase throughout the whole list of prices at which he is willing to buy more of it at the current prices.” – Alfred Marshall (1890, Principles of Economics)
Income Increases
Normal Good:
A good for which demand increases when income increases
Inferior Good:
A good for which demand decreases when income increases
Normal Goods
Inferior Goods
Assume that store-brand bathroom tissue is an inferior good for most people. As their incomes increase, all other things held constant, what happens to the demand for store-brand toilet paper?
Assume that store-brand bathroom tissue is an inferior good for most people. As their incomes increase, all other things held constant, what happens to the demand for store-brand toilet paper?
P
Q
Shift in Demand: Income Increases�
Normal Good
Inferior Good
Price of Other Goods: Complements
The price of hot dogs goes down. What happens to the demand for hot dog buns?
The price of hot dogs goes down. What happens to the demand for hot dog buns?
D
D’
P
Q
P
Q
$5
$3
2
4
Substitutes
“Ricardo has justly remarked that machinery is in constant competition with labour, and can often be only introduced when the price of labour has reached a certain height…”
– Karl Marx (Das Kapital)
THE EFFECTS OF RECREATIONAL MARIJUANA LEGALIZATION AND DISPENSING ON OPIOID MORTALITY�Chan, Burkhardt, and Flyr �Economic Inquiry �
This study documents how the changing legal status of marijuana has impacted mortality in the United States over the past two decades. We use a difference-in-difference approach to estimate the effect of medical marijuana laws (MML) and recreational marijuana laws (RML) on fatalities from opioid overdoses, and we find that marijuana access induces sharp reductions in opioid mortality rates. Our research corroborates prior findings on MMLs and offers the first causal estimates of RML impacts on opioid mortality to date, the latter of which is particularly important given that RMLs are far more expansive in scope and reach than MMLs. In our preferred econometric specification, we estimate that RMLs reduce annual opioid mortality in the range of 20%–35%, with particularly pronounced effects for synthetic opioids. In further analysis, we demonstrate how RML impacts vary among demographic groups, shedding light on the distributional consequences of these laws. Our findings are especially important and timely given the scale of the opioid crisis in the United States and simultaneously evolving attitudes and regulations on marijuana use.
Preferences for Firearms and Their Implications for Regulation �Sarah Moshary, Bradley Shapiro, & Sara Drango
This paper estimates consumer demand for firearms with the aim of predicting the likely impacts of firearm regulations on the number and types of guns in circulation. We first conduct a stated-choice-based conjoint analysis and estimate an individual-level demand model for firearms. We validate our estimates using aggregate moments from observational data. Next, we use our estimates to simulate changes in the number and types of guns in circulation under alternative regulations. Importantly, we find that bans or restrictions that specifically target “assault weapons” increase demand for handguns, which are associated with the vast majority of firearm-related violence. We provide distributions of consumer surplus under counterfactuals and discuss how those distributions could be useful for crafting policy.
Photograph taken during Covid-19 toilet paper shortage of 2020
Number of Consumers
What happened to the demand for boat passage out of Utica (in modern-day Tunisia) as the remnants of the Roman Republic attempted to flee as Julius Caesar marched on the city to capture them and Cato?
Dr. Smith reads the book Drink? about the dangers of drinking alcohol and decides to drink much less.
Graph this change in taste on a demand graph.
Change in Taste
“Its not easy being drunk all the time. Everyone would do it if it were easy.”
-Tyrion Lannister (Game of Thrones)
Price
Quantity (Drams)
$10
4
Shift in Demand
(for Drams of Scotch)
3
What if, instead, a scotch as healthy as kale were invented?��Diagram this change on a demand graph.
Price
Quantity (Drams)
$10
4
Shift in Demand
(for Drams of Scotch)
5
Shift in Demand: Expectations
Why Is This Important?
Frozen Fruit Sales Soar As Smoothies Get Popular
(Wall Street Journal)
Frozen fruit sales have topped $1 billion annually, up 67% since 2010, according to Nielsen. This comes as sales of frozen vegetables and meals are flat, and shoppers feel general disdain for frozen food compared with fresh. In part, frozen fruit got lucky. People are looking for easy ways to eat more fruits and vegetables.
How Did COVID-19 Change the Demand for Goods?
Producers had to shift resources (capital and labor) to best meet changed preferences. And, importantly, had to judge what changes were permanent versus temporary.