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.

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