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UR / Economics / ECO 108 / Why you should believe the law of demand?

Why you should believe the law of demand?

Why you should believe the law of demand?


School: University of Rochester
Department: Economics
Course: Principles of Economics
Professor: Rizzo
Term: Spring 2019
Tags: demand, supplyanddemand, Economics, demandcurves, and lawofdemand
Cost: 25
Name: ECO 108 Week 2 Notes
Description: -Brief introduction to supply and demand (just demand for this week) -focus on the Law of Demand and Demand Curves -also look at real world ramifications of understanding demand curves and the mechanics behind demand
Uploaded: 01/23/2019
5 Pages 23 Views 8 Unlocks

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Why you should believe the law of demand?

1. The Law of Demand

a. When the price goes up, the quantity demanded goes down

b. If the price of a commodity (i.e. carrots) goes up, people want less carrots i. This is proven after examining a set group of people over a set period of time

c. There are no exceptions to this Law, possible exceptions occur when other factors beyond price change

i. Ex: high demand for super expensive cars

1. This is extremely rare

2. The price does increase with demand, but so does the consumer We also discuss several other topics like How do you identify an ionic compound?

perception of the car, thus it is affected by factors beyond the Don't forget about the age old question of What organization was the largest contributor to the first earth day?

scope of the Law

2. Why you should believe the Law of Demand

a. Logically, if something increases in price you are incentivized to not buying it 3. Graph of the Law of Demand

How does the graph illustrate the law of demand?

a. b. The line “D” is called the “demand curve”

i. Demand curve is a function

ii. Demand curve slopes down

iii. Keep in mind that the curve is not always straight, can be curved

c. Curve can be steeper or shallower

i. The steepness or shallowness demonstrates the commodity’s sensitivity to price

1. The more steep means the less sensitive, the more shallow

How does a demand curve work?

Don't forget about the age old question of What do data mean?
We also discuss several other topics like What is hebrew society composed of?

means the more sensitive

ii. Steep curves usually represent consumer insensitivity to price, the opposite with shallow curves

iii. d. Demand curves can also change


4. The law is often extended by economists beyond economics

a. Car accidents Don't forget about the age old question of What term refers to a strategy to increase accuracy of a direct assessment?

i. price=probability of dying per unit or recklessness If you want to learn more check out What is the dilution effect?

ii. demand=amount of reckless driving

iii. The assertion is that the higher price (injury or death) leads to less reckless driving

b. Further point on car accidents

i. Price of reckless driving has gone down a lot due to technological advancements (shatter-proof windows, skid control)

1. Thus the same amount of recklessness in say, 1975, is less

deadly now than it was then

ii. Professor Peltzman found that the demand curve flattens out by A LOT 1. Because of safety measures like seatbelts, people drive more


2. Thus the same number of people die in the end, in fact safety measures do little to reduce the number of deaths

3. Number of pedestrian deaths do go up, since they don’t have improvements to safety equipment and since drivers go more


iii. Analysis of Peltzman’s assertions

1. Seatbelts do not do much to lower reckless driving

2. However, safety measures do reduce the price (lethality) of


3. Pedestrians lose in the end

4. This also applies to NASCAR

a. Tons of safety measures are put in every year

b. Racers drive faster and faster after each new measure

c. More members of the pit crew are injured

5. Just saying “seatbelts do no good” misses the point

a. People don’t just care about dying, they care about other

things (i.e. getting to work on time)

iv. This sounds crazy, but you can turn around the assertion in the phrasing 1. “If you wear a seatbelt, you drive more recklessly”, this sounds ridiculous

2. “If you don’t wear a seatbelt, you drive more carefully”, this sounds like common sense

v. c. Murder

i. price=probability of being executed

1. Measured by number of executions per year

ii. demand=number of murders

iii. This is a point of interest as this examines if capital punishment has a deterrent effect on murder

d. Further point on murder

i. Professor Ehrlich found that the demand curve for execution and murder was incredibly flat

1. For every 1 execution there was 8 less murders

ii. Ehrlich’s study was seen as crazy and an incorrect assertion based on bad data

1. However every recreation of the study yields numbers around

Ehrlich’s number of 8 (usually from 7-9)

iii. Professor Leamer tried intentionally manipulating data to get results 1. Biasing towards execution yields 1 execution leading to 13 less


2. Biasing towards murder yields 1 execution leading to 2 additional


3. Even these strange numbers hover around Ehrlich’s number of 8

iv. Ehrlich’s study was world changing

1. It proved the efficacy of capital punishment

2. Interestingly, Ehrlich was against capital punishment and

advocated for its abolition

v. Sociologists actually find that the effect is much smaller than Ehrlich’s study, why?

1. Economists and sociologists are both right but ask different


2. Economists ask

a. What is the effect of increasing the number of executions?

b. The answer: a large decrease in murder

3. Sociologists ask

a. What is the effect of passing a capital punishment law?

b. The answer: a very small decrease

vi. 5. Change in Demand

a. When something other than price changes, demand as a function changes and the curve moves


b. A change in price can simply be accounted for by looking at the given curve c. Ex

d. Movement

i. Movement to the right is an increase

ii. Movement to the left is a decrease

e. 6. Final thoughts on demand

a. Demand curve answers the question of how much demand there is, not how much one can get

b. Each point on the demand curve is an answer to a different hypothetical question to a different hypothetical price

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