Markets, Demand, and Related Goods (02/2001 Economics)

Course logistics and instructor background

  • Welcome and class setup observed in the transcript: the lecturer teaches downstairs and sometimes runs late due to questions from students a few floors below.
  • Class is identified as Emory University course 02/2001, focused on micro and macroeconomics.
  • The instructor: Thomas Moore Smith (you may call him Professor Smith or Doctor Smith; casual forms like Smith or Mister Smith later in the semester). He emphasizes a practical, student-centered approach and a sense of humor.
  • Personal background shared:
    • Degrees: PhD and Master’s in economics; undergraduate economics major with a math minor.
    • Studied economics because it fit with his ensemble schedule; he was on a music scholarship but chose economics as a major compatible with his schedule.
    • Hints at a Chicago origin and a recognizable Chicago accent (examples: sausage, De Beers, coffee, De Pope).
    • Sports and leisure: Cubs fan; his willingness to cancel class for a Cubs World Series win (historically occurred in 2016); enjoys fishing; has a bass boat.
    • Career notes: teaches economics and finance of sports, economics and finance for film, art programming, Tableau; is the Economic Director for the Masters of Finance programs.
    • He acknowledges being both a very capable teacher and someone who can be pedantic or “suck” in a joking way; he emphasizes care for student learning and a lack of patience for laziness or misunderstanding. He promises to be clear about how points are earned and how to fix mistakes.
  • Tone and teaching style:
    • High-energy, humor-driven delivery with real-world examples.
    • Emphasis on making the class engaging and avoiding mere textbook lecturing.
    • He admires engagement and uses stories about celebrities and current events to illustrate economic concepts.
    • He openly discusses that some students may love or hate his style, but commits to helping economics stick through concrete examples and active participation.

Course structure, materials, and Canvas setup

  • All information for the class is centralized on one Canvas page (four sections merged into one page for consistent announcements and communications across all sections: 10:00, 11:30, 1:00, and 04:00 meetings).
  • Textbook: Sexton; deemed a solid reference, though the instructor does not lecture strictly from the textbook.
  • Notes packet: A key resource provided to all students; contains outlines, examples, and a course outline mapping the semester. Digital and hard copy versions are available; students are encouraged to annotate the digital copy.
  • The instructor emphasizes alignment: every lecture and notes packet page should line up with what’s in the syllabus and the calendar; students should be able to know exactly what was studied and what’s next at any point.
  • The notes packet contains:
    • Outlines of the lecture content
    • Numerous examples and exercises to be used in class and for study
    • A page-by-page guide to the semester schedule (e.g., if today is page 10, next Wednesday would be page 11, following Monday page 14, etc.)
  • In-class logistics:
    • He passes out note packets and emphasizes annotating the digital version if using a tablet or notes app.
    • He distinguishes between the note packet and the textbook: the packet is a reframing of his lecture notes, not a verbatim transcription of textbook content.

Core concepts introduced today: Demand vs. quantity demanded; markets; and the demand curve

  • Core distinction: price changes affect quantity demanded, not overall demand
    • Quote (paraphrased): “Price does not change demand. Price changes quantity demanded.”
  • Demand vs. quantity demanded
    • Quantity demanded: the amount a person is willing and able to buy at a specific price.
    • Demand: the entire relationship between price and the quantity demanded across all price levels (the demand curve).
  • Demonstration with coffee (Amani as example):
    • Individual demand for coffee: at a given price, Amani buys a certain quantity; as price changes, her quantity demanded changes along her own demand curve.
    • If you aggregate many individuals, you obtain market demand, which, with many consumers, tends to form a smoother, often linear-looking curve.
    • Visual: Price on the vertical axis, quantity on the horizontal axis; the demand schedule maps price levels to quantities demanded.
  • Demand schedules and curves
    • Individual demand schedule can appear as a staircase due to discrete choices; the market demand, with many consumers, smooths into a more continuous line.
    • The professor draws a sample demand curve, noting it may look like a staircase for an individual but is typically approximated as a straight line for markets.
    • The market demand curve summarizes the entire willingness and ability to purchase at each price level across all consumers.
  • The law of demand (conceptual, intuitive takeaway)
    • As price rises, quantity demanded falls; as price falls, quantity demanded rises (holding other things constant for the moment).
    • Caveat: individual demand curves can have “chunky” steps; the overall direction remains downward as price increases.
  • Important distinction for the lecture: change in price affects quantity demanded (movement along the same demand curve); changes in other determinants shift the entire demand curve (a “demand shift”).

Determinants of demand (the five levers)

  • The five factors that can shift the entire demand curve (i.e., change demand at every price):
    • Income
    • Tastes (preferences)
    • Expectations
    • Population (size and composition)
    • Prices of related goods (substitutes and complements)
  • Each lever changes the willingness or ability to purchase across all prices; price of the focus good itself does not shift demand, only affects quantity demanded.

Income and demand: normal vs inferior goods; real-world examples

  • General rule: when income rises, demand for normal goods increases; demand for inferior goods decreases. When income falls, the opposite occurs.
  • Normal goods example: craft beers tend to rise in demand with income; Pabst Blue Ribbon beer can be considered inferior during better economic times.
  • Inferior goods examples (as discussed): 25-cent Top Ramen, instant coffee; as income rises, demand for these goods tends to fall.
  • Important nuance: the same good can be normal for one consumer and inferior for another depending on income and life circumstances (e.g., thrift-store shirts vs brand-new clothes; cheap shoes; etc.).
  • Shifts in income can produce different outcomes across groups or regions depending on the market structure and consumer preferences.
  • Real-world takeaway: income changes shift demand curves for normal and inferior goods in predictable directions, though the magnitude varies by consumer segment.

Tastes and the demand curve

  • Tastes can shift demand when preferences change (e.g., bands or artists in middle school vs now; fidget spinners fad).
  • Micro-trends and fast fashion are powerful drivers of demand shifts because they rapidly alter consumer preferences.
  • Tastes are not static and can revert over time (e.g., a fad fades, tastes revert, or new trends replace old ones).
  • The instructor notes: tastes are not the only driver of demand changes; expectations, income, population, and related goods also play roles.

Expectations and demand

  • Expectations about product quality, availability, or future prices can shift demand.
  • Examples used:
    • Martha Stewart towels: before her legal issues, towels had certain demand; after she went to prison, demand dynamics changed due to her image affecting the product.
    • Celebrity endorsements can alter demand when associated with a positive or negative public persona.
    • Papa John’s founder controversy and the subsequent leadership change affected consumer demand for the brand.
    • Shaquille O’Neal taking over as spokesperson after Tiger Woods’ scandal illustrates how reputational shifts can redirect demand.
  • The broader point: consumer expectations about a product or brand can shift demand even if the product’s intrinsic value has not changed.
  • Another example: new student purchases and back-to-school sales (Apple back-to-school promotions) create expectations that students should have new devices; this can shift demand for iPads and related products.
  • Changes in expectation can also arise from product changes or perceived improvements.

Population and demand

  • The size and composition of a population affect market demand.
  • Example: campus closures during COVID reduced customer base for on-campus vendors, causing demand to drop; when students returned, demand increased with the larger population.
  • Demographic shifts affect demand in different regions (e.g., Fort Lauderdale’s older population vs Johns Creek/Alpharetta’s younger demographics).
    • Older populations increase demand for certain services (e.g., spinal rehabilitation clinics, motorized wheelchair repairs).
    • Younger populations increase demand for other services (e.g., Montessori schools, childcare, OB-GYN practices in younger regions).
  • Population can refer to the pure number of people or the demographic characteristics of a population, which shifts the demand for goods appropriate to those groups.

Prices of related goods: substitutes and complements

  • Price of related goods can change demand for the focus good (cross-price effects):
    • Substitutes: if the price of a substitute rises, demand for the focus good tends to rise (consumers switch to the focus good).
    • Complements: if the price of a complement rises, demand for the focus good tends to fall (products are often consumed together).
  • Examples used:
    • Cookies and milk (complements): a decrease in the price of milk can increase the demand for cookies; a price increase for milk can reduce demand for cookies.
    • Substitutes like doughnuts vs cookies: a price drop in doughnuts can decrease the demand for cookies, as consumers substitute away.
  • The strength of the substitutability or complementarity affects how large the cross-price effect is on demand.
  • If two goods are neither substitutes nor complements, a price change in one does not affect the demand for the other.
  • The cross-price effect is often summarized using cross-price elasticity: rac{ ext{d}Qd}{ ext{d}Pr} > 0 ext{ for substitutes, } rac{ ext{d}Qd}{ ext{d}Pr} < 0 ext{ for complements}.

Putting it all together: shifts vs movements along the curve

  • Key rule recap:
    • Price change = movement along the same demand curve (quantity demanded changes; demand curve stays put).
    • Changes in any of the five demand determinants (income, tastes, expectations, population, prices of related goods) = shift of the entire demand curve (demand changes at every price).
  • Visual intuition with Amani’s coffee example shows how one individual’s demand curve can look irregular, while aggregation across many consumers creates a smoother, more conventional curve.

Practical takeaways and insights from the lecture

  • The five levers that shift demand: Income, Taste, Expectation, Population, Prices of related goods.
  • Demand vs. Quantity Demanded: distinguish between the entire demand curve (demand) and a single point along that curve (quantity demanded at a given price).
  • The role of elasticity will be introduced later; in this lecture it’s acknowledged but not defined. The focus remains on the direction and drivers of demand shifts and movements along the curve.
  • Real-world relevance and ethical considerations:
    • Celebrity associations and branding can materially affect demand for products and brands (e.g., Martha Stewart towels, Tiger Woods vs Shaquille O’Neal advertising).
    • Public perception and sensational news can influence consumer demand through expectations and reputational effects.
  • The instructor’s broader message: economics is about understanding how incentives, information, and preferences shape market outcomes; the notes packet and Canvas are designed to keep you aligned with the syllabus and avoid confusion about what’s studied and what’s next.

Quick glance at the upcoming topics and schedule

  • Today’s focus: supply and demand foundations (with emphasis on demand concepts and determinants).
  • Next class (Wednesday): cases and introduction to supply.
  • Then: market equilibrium analysis by combining supply and demand.
  • The overall semester plan is laid out in the notes packet, with a page-by-page calendar showing what is studied when (e.g., today is page 10, next Wednesday page 11, etc.).

A few final contextual notes from the transcript

  • The instructor often uses humor and anecdotes (sports, celebrities, personal stories) to illustrate concepts and maintain engagement.
  • He stresses that the course is practical and that he will use real-world examples rather than purely textbook-based lectures.
  • He encourages student participation, questions, and active note-taking, including annotation of the digital notes packet.
  • He acknowledges that some students may not resonate with his style, but emphasizes that the goal is deep understanding of economics and a good learning experience.

Summary of key definitions and formulas (for quick reference)

  • Demand: the entire relationship between price and the quantity demanded across all prices, denoted as a curve Q_d = D(P, factors).
  • Quantity demanded: the amount consumed at a specific price, Q_d = D(P) at that P.
  • Law of demand: as price increases, quantity demanded decreases (holding other determinants constant).
  • Demand determinants (the five levers): Income (I), Tastes (T), Expectations (E), Population (N), Prices of related goods (P_r).
  • Normal vs inferior goods:
    • Normal goods: demand↑ with income↑ (e.g., craft beer).
    • Inferior goods: demand↑ with income↓ (e.g., Top Ramen, instant coffee).
  • Complements and substitutes: prices of related goods affect demand for the focus good.
    • Complements: if price of a complement falls, demand for focus good rises (e.g., milk and cookies).
    • Substitutes: if price of a substitute rises, demand for focus good rises (e.g., cookies vs doughnuts).
  • Market demand: the horizontal sum of all individual demands; becomes smoother with many consumers.
  • Cross-price effects: sign of ∂Qd/∂Pr indicates substitutes (>0) or complements (<0).
  • Shifts vs movements along the curve: shifts in the curve due to determinants; movement along the curve due to price changes.

Note on next steps

  • Prepare for the next class by reviewing the concept of supply and how it interacts with demand to determine market equilibrium.
  • Be ready to refer to the notes packet for a structured outline of the semester and specific page references (e.g., page 6 for factors shifting demand; page 10 for today’s content; page 11 for next session).

Title

Lecture Notes: Markets, Demand, and Course Overview