Using a Table
There are other ways to express the demand for a product that may be easier for a reader to follow. One way that demand is expressed in economics is using a table. As with words, there are many ways we could present this. For example, we could have a table that shows how much wine one would demand at each level of income. However, since price is widely believed to be the main factor influencing demand, we typically use a table that shows the quantity consumers are willing and able to buy at each price. For example:
As this table shows, if the price of a bottle of wine were $10, we would expect 50,000 cases of red wine to be sold and if the price of a bottle of wine were $20, we would expect 30,000 cases to be sold. This is the same information we gave to you above - we've just presented it in a different way. The table also has an extra line that shows you that if the price of a bottle of US-produced red wine were $30, we would expect just 10,000 cases to be sold.
But what if something else changes? For example, in recent years many medical studies have shown that moderate consumption of red wine reduces the risk of heart disease. What effect might we expect this to have on the demand for red wine? Suppose the table shown above represents the demand for red wine that existed before these studies were released. After these studies are made public, consumers may very well want to buy more red wine because they believe it is good for their health. (This would be a change in tastes or preferences.) What this means is that any given price, people want to buy more red wine than before. For example, when the price of a bottle of red wine is $10, consumers are now willing and able to buy 80,000 cases of red wine in a month (instead of the 50,000 cases they were willing and able to buy before). At a price of $20 a bottle, consumers are willing and able to buy 60,000 cases of red wine in a month, and 40,000 cases at a price of $30. This is reflected in the table below:
At this point we need to introduce a little terminology that is used in many economics courses. Suppose someone wanted to compare the amount of wine consumers are willing and able to purchase at a price of $10 before the studies were released (50,000 cases in the table) with that when the price is $20 after the studies were released (60,000 cases). One might be confused because as the price increased from $10 to $20, the amount consumers were willing and able to buy increased from 50,000 cases to 60,000 cases. Does this mean that the Law of Demand does not hold? Of course not. The problem with this comparison is that TWO things are changing: the price of a bottle of wine (from $10 to $20) and the tastes and preferences of consumers (because the new study was released). In order to avoid confusion, we try to be careful to consider the effect of only one factor at a time. For example, the effect of increasing the price of a bottle of wine from $10 to $20, holding "everything else constant" (such as tastes and preferences, income, etc.) is to decrease the amount consumers are willing and able to buy by 20,000 cases (from 50,000 to 30,000 before the studies were released, or from 80,000 to 60,000 after they were released). On the other hand, the effect of the studies, holding "everything else constant" (such as the price of wine, etc.) is to increase the amount consumers are willing and able to buy by 30,000 cases (from 50,000 to 80,000 if the price is $10; or from 30,000 to 60,000 if the price is $20). The latin phrase for holding everything else constant is ceteris paribus.