Definitions and Basics
Demand, from the Concise Encyclopedia of Economics
One of the most important building blocks of economic analysis is the concept of demand. When economists refer to demand, they usually have in mind not just a single quantity demanded, but what is called a demand curve. A demand curve traces the quantity of a good or service that is demanded at successively different prices.
The most famous law in economics, and the one that economists are most sure of, is the law of demand. On this law is built almost the whole edifice of economics. The law of demand states that when the price of a good rises, the amount demanded falls, and when the price falls, the amount demanded rises….
The Demand Curve, Marginal Revolution University
Law of Demand, at Khan Academy
Law of Demand Interactive Lesson Plan, from Marginal Revolution University.
This 45-minute interactive lesson (in Google-Docs format) introduces the Law of Demand by engaging students with the media they use everyday, like our short instructional video on the demand curve.
Trade for the Win! Lesson Plan at AdamSmithWorks
This lesson allows students to experience the benefits of trade that Adam Smith wrote about in An Inquiry into the Nature and Causes of the Wealth of Nations. Students participate in a trade simulation that measures the variation in benefits received (utility) in a variety of rounds from no trade to free trade. The ability to exchange goods they possess for items that they value more increases the wealth for both the individual and the group. Video resources will reinforce the concepts of this lesson.
Microeconomics, from the Concise Encyclopedia of Economics
The strength of microeconomics comes from the simplicity of its underlying structure and its close touch with the real world. In a nutshell, microeconomics has to do with supply and demand, and with the way they interact in various markets….
Morgan Rose, Elasticity and its Expansion. Econlib, January 2003.
In economics, an elasticity is a measurement of the responsiveness of one variable to a change in another variable. There are many different types of elasticities distinguished by the pair of variables that each one considers, but at their core they are all simply comparisons of how one thing changes in response to changes in another.
In the News and Examples
Trey Malone and Jayson L. Lusk, No Yolk: Shortages and Spikes in the Time of COVID, Econlib, May 2021.
Why did prices climb so quickly in the wake of the pandemic? The suddenness and size of two large demand shocks are largely to blame. Prior to the pandemic, Americans consumed about 52% of their food away from home through restaurants and cafeterias and the remaining 48% through grocery stores and supermarkets. Government shutdown-orders and consumer fears led to a spike in demand at groceries and a near total collapse in demand for food from restaurants. Year-over-year expenditures at restaurants, school cafeterias, sports venues, and other eating-out places dropped 50% in April 2021,2 with most Americans spending most of their food dollars at grocery stores, supercenters, convenience stores, and other food-at-home retailers. Food supply chains are optimized and specialized to sell to either of those two locations. For example, even bananas are packaged and sold by the bunch at a grocery store but are packaged and sold by the box for cafeterias.
Richard McKenzie, How Free Market Kidney Sales Can Save Lives- And Lower the Total Cost of Kidney Transplants. Econlib, March 2012.
The demand for kidneys is a function of several factors, including the size of medical schools and their need for kidneys in research and instruction and the number of people who experience kidney disease or outright failure. Because kidney failures can be linked to a person’s eating and drinking habits, such habits can also affect the demand for kidneys. Further, the demand for kidneys is related to the cost of alternative treatments (dialysis, for example) and known techniques for transplanting organs.
A Little History: Primary Sources and References
There is an endless variety of wants, but there is a limit to each separate want. This familiar and fundamental tendency of human nature may be stated in the law of satiable wants or of diminishing utility thus:—The total utility of a thing to anyone (that is, the total pleasure or other benefit it yields him) increases with every increase in his stock of it, but not as fast as his stock increases. If his stock of it increases at a uniform rate the benefit derived from it increases at a diminishing rate. In other words, the additional benefit which a person derives from a given increase of his stock of a thing, diminishes with every increase in the stock that he already has.
Fred McChesney, Armen Alchian: An Economist Lion in Winter. Econlib, November 2009.
If time is important on the supply side, what of the demand side? Here, too, Alchian’s work has been pathbreaking. In particular, he (with co-author William Allen) pioneered recognition of the Second Law of Demand.
Toilet Paper Wars, Lesson Plan at AdamSmithWorks
In this lesson plan inspired by the COVID pandemic, learners inventory their supply of toilet paper to investigate how the competing forces of supply and demand are engaged in a dynamic balancing act to determine the quantity of a product or service to be produced and sold.
Adam Martin, Price Discrimination and the Future of Movies. Econlib, November 2020.
…rice discrimination strikes many first-time economics students as a bad thing. It’s another case of producers—especially Big Bad Corporations—extracting all the gains from economic cooperation for themselves. (This, of course, ignores the fact that consumers in one market are producers in another.) But taken together, the two conditions underwrite the greatest artistic achievement in mankind’s history: big budget comic book movies.
Richard McKenzie, Market Competitiveness and Rationality: A Brain-Focused Perspective. Econlib, October 2019.
Neoclassical economists start their analytics by assuming that resource scarcity is pervasive, and people are the ultimate seat of rational decision-making. The scarcity problem, however, is not taken into consideration within the human brain, given neoclassicists’ perfect-rationality premise, which makes decision refinements costless.