If the price of pizza goes up, what
happens to the demand for pizza? . . . . . . . . . . . . . .
. . . . . NOTHING! Nothing happens to the demand for pizza
if the price changes!
The next three lessons introduce the
demand and supply model for explaining how prices arise and
change in a market economy. Learn these lessons well. Do the
assigned problems. Draw the graphs in the yellow pages and
while you are reading and studying. DRAW GRAPHS! Get used to
using the graphs to help you answer questions. If you are
avoiding drawing the graphs you will do poorly and not get
the practice that you need to learn the concept. Be sure to
LABEL the axes of every graph that you draw.
So why doesn't the demand for pizza
change if the price changes? Because economists have a
different definition of "demand". Demand is NOT the quantity
that we buy. If the price of pizza goes up we will buy less,
but that is not what "demand" means in economics. Economists
tend to be precise with their definitions and sometimes
their definitions are different than the more commonly used
definitions. Things like "scarcity", "investment", "cost",
"demand", and "supply", have different definitions in
economics than what you may already know. Learn our
definitions! Demand is not how much we buy. Demand has a
different definition in economics. "Demand" means the
"demand graph".
Remember, that econmists use models
(like the supply and demand model) to simplify the real
world. They do this by isolating certain variables from all
the clutter found in reality. Then by changing one variable
at a time economists can see what effect it will have. In
this lesson we will learn the economic definition of DEMAND
and plot the demand graph. Then, we will look at one
variable at a time to see what effect they have on the
demand curve. We call these variables the "non-price
determinants of demand". They are: Pe, Pog, I, Npot, T
(P,P,I,N,T). LEARN THEM! LEARN THEM WELL! Know how each one
affects the demand curve. Be sure to do the yellow pages.
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