00:01
So here we're going to try to derive a demand curve.
00:03
And of course, we can't give numbers here, but i can show you the process for this.
00:10
And i can try to walk you through the steps by which you can graphically derive a demand curve.
00:16
So first of all, let's graph x versus y.
00:21
And i'll try to break down the procedure.
00:23
One, we need to construct a budget line.
00:28
And this is based on prices and income, right? it's a measure of how much you can afford, and it is reflecting how much, right, you can buy of each good.
00:48
So let's say my budget line looks something like this, right? this is straight because prices are constant, right? the slope of the budget line tells you how much you're giving up of one good to buy some of the other good.
01:05
And the idea here is that your behavior as a consumer doesn't influence market prices.
01:11
If i buy more coke, it doesn't change the price of coke, a cola versus pepsi in the store, right? i have no control over the price as a consumer.
01:20
So as i go up and down my budget line, i don't change the prices.
01:24
And so the trade -off between these two goods are constant.
01:31
The second part is preferences, right? how much do i like these things? and these are represented by what we call indifference curves.
01:41
So curves, and they show what we like.
01:48
So the budget line shows what we can afford, right? this is based on afford.
01:57
This is based on what we like.
01:59
And this usually looks something like this.
02:02
So there's a gorgeous indifference curve.
02:05
And difference curve is a set of points we all like the same.
02:14
So every point on this line, we all like the same.
02:19
And the curve is due to diminishing returns, right? so for the budget line, the line was straight because the price was constant.
02:29
But for our preferences, the trade -off is not constant, right? so the trade -off gets kind of flat as we go up to the side.
02:37
If you look up here, the steep slope shows that basically that we're sick of why.
02:56
As you get more and more and more of one good, you start thinking about how much you still like it, right? if you give me a whole bunch of one product and more and more and more of that product, because i get more and more of one product, i say, look, i have plenty of this stuff.
03:13
I don't want any more of this stuff...