Glamor Economics

Chapter 24

Chapter 4 Section 5 Why Diamonds Are More Expensive Than Water - Changes in Supply and Demand
In economics, there is a well-known price problem between water and diamonds. Nothing is more useful (greater in use value) than water, but a ton of water is only a few cents, while tens of thousands of tons of water can be exchanged. A diamond, diamonds have almost no use (small use value) except to show off wealth.Why does water have many uses but little value, while diamonds have little use but great value?For hundreds of years, economists have been talking about this "mystery of water and diamonds", trying to explain it from different angles.One of the simplest explanations is that supply and demand determine prices.

The supply and demand curve for water intersects at very low price levels; the supply and demand curve for diamonds intersects at very high price levels.Water has a steady stream and a large supply, so it is worthless; diamonds are rare and have a small supply, so they are valuable.

1. Changes in demand
In microeconomics, both the change in the quantity demanded and the change in demand refer to changes in the quantity demanded. The difference between them is that the factors that cause these two changes are different.The representations of these two movements in geometric figures are also different.

(1) Changes in the quantity demanded.A change in quantity demanded is a change in the quantity demanded of a commodity caused by a change in the price of a commodity, other things being equal.

demand for a commodity
Price-quantity combination ABCDEFG
Price (yuan) 1234567
Demand (number of units) 700600500400300200100
The relationship between the price of a commodity and the quantity demanded can be clearly seen from the table above.For example, when the commodity price is 1 yuan, the demanded quantity of the commodity is 700 units; when the price rises to 2 yuan, the demanded quantity decreases to 600 units; when the price rises further to 3 yuan, the demanded quantity decreases to 500 units unit.The demand table actually expresses the functional relationship between the price of a commodity and the quantity demanded in the form of a numerical table.

(2) Changes in demand.The change in demand refers to the change in the demanded quantity of a commodity caused by changes in other factors under the condition that the price of a commodity remains unchanged.Changes in other factors here refer to changes in consumer income levels, changes in prices of related commodities, and changes in consumer preferences.

2. Changes in supply

In microeconomics, both changes in the quantity supplied and changes in supply refer to changes in the quantity supplied, and the difference between them is that the factors that cause these two changes are different.The representations of these two movements in geometric figures are also different.

(1) A change in the quantity supplied.A change in quantity supplied is a change in the quantity supplied of a commodity caused by a change in the price of a commodity when other conditions remain unchanged.

supply of a commodity

Price-quantity combination ABCDE
Price (yuan) 23456
Supply (number of units) 0200400600800
The above table clearly shows the functional relationship between the price of a good and the quantity supplied.For example, when the price is 6 yuan, the supply of the commodity is 800 units; when the price drops to 4 yuan, the supply of the commodity decreases to 400 units; when the price further decreases to 2 yuan, the supply of the commodity decreases to 0 .

(2) Changes in supply.A change in supply refers to a change in the quantity of a commodity supplied due to changes in other factors under the condition that the price of a commodity remains unchanged.Changes in other factors refer to changes in production costs, changes in production technology levels, changes in prices of related commodities, etc.

[links to related words]

Supply and Demand Changes: Changes in supply and demand due to changes in the price of a commodity.

(End of this chapter)