Tyler Cowen's Idea #1: Demand Slopes Down

♪ [music] ♪

- [Tyler] Now Socrates --
I actually disagree with him --

he said the only true wisdom
is in knowing that you know nothing.

So I'm an economist.

I'm not a philosopher.

So what does the economist say?

The economist does not say
that he or she knows nothing.

The economist says
"I know one thing --

maybe it's only one thing,
but it's one thing."

And that one thing is

that the demand curve
slopes downward.

(audience laughing)

And I know some
of you are thinking

what about Giffen goods?

But there are no Giffen goods,

certainly not in wealthy, modern,
contemporary America.

We have at least one thing to teach
and in my imaginary lesson

or I just have someone,
and they're paying attention.

First thing I tell them is
the demand curve slopes downward,

and then I would discuss for awhile,
how many applications of economics

are really instances
or generalizations of this principle.

If something becomes more expensive,
you do less of it.

So I just came here from Montreal,
and originally my wife and I were

going to spend the weekend
in Montreal

before what I was doing there,
my event there.

She went to Orbitz
and she saw that the price

of flying to Montreal
was about $800,

and I said, "Oh, come on,
go anyway."

Her demand curve
sloped downwards.

It's very, very simple.

So that's like what we do know,

and what we don't know is

well, the world changes
in many ways.

There are a lot of effects going on
that are not just price effects.

People may change their tastes
or their expectations, right?

Then you're not always sure
how the law of demand applies there

in a simple way.

Another set of things
we don't know --

we don't always know
what is the real price?

So if you go to the store --

say, you need
to buy ping pong balls.

You know the price, right?

They're pretty cheap.

It's not really
a very ambiguous decision.

You buy the ping pong balls
or you don't -- the price is clear.

Economic theory applies very well
to this kind of circumstance.

But say you're dealing
with one of your children