KW_Macro_Ch_03_Sec_01_Demand_Curve

KW_Macro_Ch_03_Sec_01_Demand_Curve - chapter 3 > Supply...

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>> Supply and Demand Section 1: The Demand Curve chapter 3 How many people wanted to buy scalped tickets to see the New York Rangers and the Ottawa Senators play that April night? You might at first think the answer was: every hockey fan in Ontario who didn’t already have a ticket. But although every hockey fan wanted to see Wayne Gretzky play one last time, most fans weren’t willing to pay four or five times the normal ticket price. In general, the number of people who want to buy a hockey ticket, or any other good, depends on the price. The higher the price, the fewer people who want to buy the good; the lower the price, the more people who want to buy the good. So the answer to the question “How many people will want to buy a ticket to Gretzky’s last game?” depends on the price of a ticket. If you don’t yet know what the price will be, you can start by making a table of how many tickets people would want to buy at a number of different prices. Such a table is known as a demand schedule . This, in turn, can be used to draw a demand curve , which is one of the key elements of the supply and demand model.
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The Demand Schedule and the Demand Curve A demand schedule is a table showing how much of a good or service consumers will want to buy at different prices. At the right of Figure 3-1, we show a hypotheti- cal demand schedule for tickets to a hockey game. According to the table, if scalped tickets are available at $100 each (roughly their face value), 20,000 people are willing to buy them; at $150, some fans will decide this price is too high, and only 15,000 are willing to buy. At $200, even fewer people want tickets, and so on. So the higher the price, the fewer the tick- ets people want to purchase. In other words, as the price rises, the quantity of tick- ets demanded falls. The graph in Figure 3-1 is a visual representation of the information in the table. The vertical axis shows the price of a ticket, and the horizontal axis shows the quantity of tickets. Each point on the graph corresponds to one of the entries in the table. The curve that connects these points is a demand curve . A demand curve is a graphical representation of the demand schedule, another way of showing how much of a good or service consumers want to buy at any given price. Suppose scalpers are charging $250 per ticket. We can see from Figure 3-1 that 8,000 fans are willing to pay that price; that is, 8,000 is the quantity demanded at a price of $250. Note that the demand curve shown in Figure 3-1 slopes downward. This reflects the general proposition that a higher price reduces the number of people willing to buy a good. In this case, many people who would lay out $100 to see the great Gretzky aren’t willing to pay $350. In the real world, demand curves almost always, with some very specific exceptions, do slope downward. The excep- tions are goods called “Giffen goods,” but economists think these are so rare that for practical purposes we can ignore them. Generally, the proposition that a 2 CHAPTER 3 SECTION 1: THE DEMAND CURVE A demand schedule shows how much
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KW_Macro_Ch_03_Sec_01_Demand_Curve - chapter 3 > Supply...

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