Jon has taught Economics and Finance and has an MBA in Finance
Economics is the study of how people use scarce resources in order to satisfy unlimited needs and wants. When individuals attempt to satisfy their needs and wants by purchasing a good or service, economics calls it demand. Let's talk about demand, what it looks like, and how it determines the market demand schedule.
I don't know about you, but I love bananas. Bananas can be peeled and eaten, but they can also be used to make a variety of other desserts. For example, my favorite dessert is called bananas foster. But the point is, I am willing and able to buy bananas.
My demand for bananas would change, depending on the price of the bananas in the store. When bananas cost me 30 cents each, then I buy six of them. But, at a price of 60 cents for the same bananas, I'm only willing to buy three of them.
Quantity demanded is the quantity of a good or service that an individual is willing and able to buy at a certain price. Now I just said that if the price of a banana is 30 cents, then the quantity of bananas I demand would be six. But I'd only want three bananas if the price went up to 60 cents. So, what does this really tell us? The quantity of a product or service demanded changes as price changes.
A demand schedule is a table that lists the quantity demanded for a good that people are willing and able to buy at all possible prices. You can use it to describe the demand for a good or service in a particular area such as your hometown, or for example, in a local grocery store. That's what the demand schedule is for. For example, the demand schedule for bananas at the supermarket might look like this:
Demand Schedule for Bananas
|30 cents||500 bananas week|
|40 cents||487 bananas a week|
|50 cents||382 bananas a week|
|60 cents||240 bananas a week|
The demand schedule shows you how the demand changes when you increase or decrease the price. As you can see from this demand schedule, when the price goes from 30 cents all the way up to 60 cents, the amount of bananas demanded goes down.
Now, the demand schedule works the same way for services. So, let's look at a demand schedule for Bob's lawn-cutting services in his neighborhood.
Demand Schedule for Bob's Low-rider Lawn Mowing
|$15||50 cuts per week|
|$20||47 cuts per week|
|$25||39 cuts per week|
|$30||29 cuts per week|
|$35||12 cuts per week|
|$40||1 cut per week|
As you can see, this demand schedule shows the quantity demanded at each possible price for the service that Bob performs for the neighborhood.
The Market Demand Schedule
All right, let's talk about the market demand schedule. Let's go back to bananas, because I'm thinking about that banana dessert right now. There are people all over the country who want (or demand, as we say) bananas. What we want to know in economics is: how many bananas will everyone in the whole economy buy at different prices? That's where the market demand schedule comes in. What we're doing is combining all the demand schedules together, not only for the local grocery store, but all the stores everywhere in our country - wherever bananas are available for sale.
The market demand schedule is a table that lists the quantity demanded for a good or service that people throughout the whole economy are willing and able to buy at all possible prices. Let's look at a Market Demand Schedule for Bananas:
Market Demand Schedule for US Bananas
|30 cents||96,000 tons of bananas per week|
|40 cents||89,000 tons of bananas per week|
|50 cents||75,000 tons of bananas per week|
|60 cents||51,000 tons of bananas per week|
So, as you can see, instead of listing the quantities demanded each week from the local supermarket, it shows you how many tons of bananas are demanded each week across the entire economy.
When individuals attempt to satisfy their needs and wants by purchasing a good or service, economics calls it Demand.
- The quantity demanded is the quantity of a good or service that an individual is willing and able to buy at a certain price. The quantity demanded of a product or service changes as the price changes, and the demand schedule shows you this.
- A demand schedule is a table that lists the quantity demanded for a good that people are willing and able to buy at all possible prices.
- The market demand schedule is a table that lists the quantity demanded for a good or service that people throughout the whole economy are willing and able to buy at all possible prices.
By the end of this lesson, you'll know:
- What demand is
- How to determine quantity demanded
- The structure and purpose of a demand schedule
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