Will demand curves have the same exact shape in all markets?...

Name: Problem 14, Chapter 3: Principles of Macroeconomics for AP Courses
Uploaded: 2020-05-19T22:08:08-08:00
Duration: 4 min 16 s
Channel: Yang Su
Description: Will demand curves have the same exact shape in all markets? If not, how will they differ?

Key Concepts

Demand Curve

A demand curve represents the relationship between the price of a good or service and the quantity demanded by consumers. It is a foundational concept in economics that illustrates how changes in price can influence purchasing behavior, typically showing a downward slope due to the law of demand. However, this curve can vary in shape across different markets depending on various underlying factors.

Price Elasticity of Demand

Price elasticity of demand measures how sensitive the quantity demanded of a good is to changes in its price. In markets where consumers are highly responsive to price changes, the demand curve tends to be flatter, while in markets where consumers are less responsive, the demand curve is steeper. This elasticity difference is a key reason why demand curves do not have a uniform shape across all markets.

Determinants of Demand

Beyond price and quantity, the shape of a demand curve in any given market is influenced by various determinants such as consumer incomes, tastes and preferences, and the prices of related goods. These factors can cause shifts and changes in the curve's shape, reflecting unique market dynamics that make demand curves distinct from one market to another.

Market Heterogeneity

Markets differ due to variations in demographic composition, cultural factors, and the availability of substitutes, among other factors. This heterogeneity leads to differences in how consumers respond to price changes and how demand is distributed, contributing to the differences in the shape and steepness of demand curves in different markets.

Transcript

00:01 Okay, so in this video, we're going to answer the following question.

00:03 Will demand curves have the same exact shape in all markets? if not, how will they differ? so we know that when we're drawing a demand curve, we are looking at the relationship between price and quantity demand.

00:21 We put quantity demand on the axis, price on the y -axis, and demand curve is usually downward sloping.

00:30 That means there's a negative relationship between price and quantity.

00:34 When the price is higher, we usually have lower quantities according to this curve, right? so the question is, suppose we have different markets like market for apple, market for cell phones, market for cars, will the demand curve for every market be the same? and the answer is definitely no, right? even though the relationship between price and quantity are, it's a negative relationship, downward sloping, we have downward sloping demand curve in most of the markets, how steep the demand curve is, is different.

01:14 For example, i just drew a steeper demand curve in which when there's a increase in the price, the decrease in quantity is smaller than the original.

01:31 Flatter demand curve.

01:37 So what that means is that in my green line, the green demand curve, people are less sensitive to price change because when given the same price change, the reduction in demand is smaller for the green curve.

01:55 So we can think of some examples.

01:58 For example, let's say, milk, right? so a majority of families demand milk and they think that it's a necessity for their daily life.

02:11 And in that sense, if there's a 1 % for example, 10 % increase in the price of milk, the demand for milk is not that, we will not drop by too much because everybody wants to drink milk on a daily basis...

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