Saturday, April 3, 2010

Desire v. Demand

One of the first things I teach students in my Law & Economics class is the difference between desire and demand. Desire is whatever we want; demand is whatever we want backed by willingness and ability to pay.

Here's an example: I desire a new bike - either the new DeRosa Idol or a Cyfac Absolu with electronic Dura Ace and a set of HED Ardennes wheels would do nicely, thanks - but I do not demand a new bike because, given my existing budget constraint, I do not have the ability to pay for either of the bikes I desire.

That is not entirely accurate, however. In fact, my budget constraint would permit me to afford either of those bikes, but the opportunity costs - no car payments (hence no car), no mortgage payments (hence no house), no college for my daughter, less food for the family, etc., not to mention the reaction to all those costs of Mrs. Cyclingprof - would be enormous. So, while I do desire a new bike, I do not demand one.

1 comment:

  1. when u have purchasing power then your desire becomes demand and nothing more my dears....there is no other law .if you have purchasing power then everything like jet plane also can become your demand but if you haven't purchasing power then a cycle could be consider as your desire...and this is true according to this time.

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