Last time in previous video where we looked at where demand curves might come from, and now we want to talk a bit more about demand curves. So I'm going to say more on demand curves. Remember, where we are with the demand curves just because it's our first real graph in a course that spends a lot of time doing graphs. We have price, we have quantity, and then we have some linear form that is downward sloping, and this is our demand curve. That demand curve is essentially just a function that says output is some function f of price, linear for us right now. I want to introduce a little jargon here. The jargon says, we're going to use the phrase "Change in Demand" to refer to "shifts in the demand curve." We're going to use the phrase "Change in Quantity Demanded" to refer to "movements along a static demand curve." So let's think about what that really means. You have a record in this now, so you can go back and look at this on the video, and read it and think about it or write it down on your own notes, but I'm going to draw you a graph here to think about it. So in our graph, on the vertical axis, we're going to put price, and on the horizontal axis, we're going to put quantity. We have some demand curve to begin with. We'll call this demand curve D_0. What we decided from this previous one is that we would say, the phrase "Change in Demand" to refer to "shifts in the demand curve". So suppose this is the demand curve for this product, and now something comes along and changes how consumers view this product, the government. Suppose this is the quantity of tomatoes, and suppose the government releases a new study that said, "Consumption of more tomatoes significantly reduces the probability of heart disease." Now, that's possible. People are making studies like this all the time. Suppose they make their announcement. Well, what that means is that now, in the old days if price was P_0, consumers want to by Q_0. But now, if price is P_0, people want to buy more than they used to. Why? Because it's now a different product in their mind. There are still tomatoes, they still got tomato farms and they're producing and all these things, but consumers value the product that differently than it did yesterday. At any quoted price, consumers want more today than they did yesterday. At any quoted price, consumers want more today than they did yesterday. So what that means for us, is that the demand curve has shifted out. So the demand curve has shifted to the right. At any quarter price, people want more than it did before. Now, our jargon for this is to say that's an increase in demand, that it's a change in demand. So a shift in the curve, let's go back to our previous page. We call it a change in demand when we have a shift in the demand curve. The whole curve itself moves. Alternatively, let's draw another graph. So I needed a new sheet of paper. On here, I put price and quantity just like before. I'm going to draw a demand curve, which I arbitrarily picked to be here because I've got the pin, it's linear. This is the original demand curve, and here is our original equilibrium. Now, something comes along to change the price. I don't know what caused the price to go up. Maybe the government put a tax on this product. Maybe the government says, "I'm going to tax this product." Then, they've put that tax and the price is go up, whatever is. If the price goes up from P_0 to P_1, consumers are going to go from Q_0 to Q_1. This difference to us in terms of jargon, it's a movement along a static curve. So we call that a change in quantity demanded. The movement from alpha to beta, which will accentuate here by drawing a red line on here. The movement from alpha to beta is a movement along a static curve. That we would say as a decrease in quantity demanded. Quantity demanded drops from Q_0 to Q_1 along the curve. Now, you might say, "Larry, why are you doing this to us? Why do we have to think about all these obscure little changes in words, demand versus quantity demand? What's really important?" See, if I ask you a question on an exam and it says, this is happening across the country, many states are contemplating increasing gasoline tax. Why? Because it turns out our infrastructure is pretty bad. Every state in the country, every state a in unit has bridges that are falling apart and roads that have potholes, and all of these things, and so they're thinking about raising the tax. Suppose I told you to model of me, what would happen if they raise the tax of gasoline? You say, "Well, I know what happens Larry." That's going to make gasoline more expensive. That means, that there is going to be a drop in demand. Of course, you would be wrong. That's just like this. If the price of gasoline went up, it would be a movement along a static demand curve. There would nothing to change the underlying quality of the gasoline. This curve that you built, this curve gathers all the information about how much people will pay and how much people will want to buy at different possible prices? So if they roll up to the pump and the price is higher than it was before, they don't buy as much gas. Now, we're going to spend a lot of time thinking about the gasoline demand curve. It turns out the gasoline demand curve is downward sloping, but it turns out it is really steep. When the price of gasoline goes up, people curse and swear, but they still fill their car because they got to get to work, they got to take the kids to soccer practice, all these things. So there is some cutback, there'll be some carpooling, there'll be some switching to their bicycle to go to the corner stores that are driving the car two blocks down to get some milk, but not very much. This movement along is because this price went up. The curve itself didn't shift. The curve represents people's willingness to purchase at different possible prices.
