Economics: The Law of Demand
Now that we’ve talked about economics, microeconomics, and macroeconomics, let’s talk about the Law of Demand. Since we are talking about laws, we have to talk about this new term that you will see every time you read about economics.
It is ceteris paribus. It means, “all things being equal.” Like in sports, the field has to be as separated as possible from the watchers. Baseball players would find it very hard to play a good game with the watchers running around the field. Everything is ceteris paribus in the baseball field because nothing else is happening inside the field but baseball. Don’t worry, we will explain this more as we go along.
Now, let us go to the Law of Demand. The Law of Demand states: the more expensive something is, the less people will want to buy it. Say the resource in this case is a bottle of water. If a bottle of water was 5 cents, some students would buy it because they are really thirsty, some because they are kind of thirsty, others because they might be thirsty later, others because it is cheap. It does not matter so much one way or another, because the price is so low.
Now, what if the water was 2 dollars? Maybe only the really thirsty, kind-of-thirsty, and thirsty-later students would spend money on water. The students who would buy it because it is cheap would rather spend their money on something else, like ice cream or books.
If the water was 50 dollars, only the really thirsty students would be willing to pay that much. The thirsty-later students might figure they can look for water somewhere else, the kind-of-thirsty students might decide that they can wait for cheaper water. Only the really thirsty students would still look for water at that price.
The Law of Demand works because of how much people want something at the moment. If you look at the example with the bottle of water, only the students who really, really wanted water would pay 50 dollars for a bottle, so the number of students buying water was less. The cheaper something is, the more people will spend on it, but they will not all want or need it the same way.
So, how does ceteris paribus work here? It means, first, that we assume that the zombie apocalypse has not happened yet, and that there is enough water to sell. The zombie apocalypse would make even not-thirsty students want to buy expensive water, because water is hard to find. Second, we assume, or pretend, that there are no other liquids for sale, such as juice, soda, iced tea, and others. If there were other liquids to buy, even very-thirsty students might buy them instead if they were cheaper.
So, let’s go through that again. The Law of Demand says the more expensive something is, the less people will want to buy it. It’s the same the other way around. The cheaper something is, the more people will want to buy it. It depends on how much people want the “something” at the moment. We also assume ceteris paribus, or that all things are equal, while studying how this law works.