Price of Related Products and Demand How changes in the price of related goods can shift demand
Price of Related Products and Demand
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- We have talked a little bit about the law of demand
- which tells us that, all else equal,
- if we raise the price of a product,
- then the quantity demanded for that product will go down.
- ..common sense. If we lower the price,
- the quantity demanded will go up.
- And we will see so in a few special cases for this.
- What I want to do in this video is focus on
- these other things that we've been holding equal,
- the things that allow us to make this statement,
- that allow us to move along this curve
- and think about if we were to change one of those things
- that we were otherwise considering equal,
- how does that change the actual curve?
- How does that actually change
- the whole quantity demanded price relationship?
- And so the first of these that I will focus on:
- the first is the price of competing products.
- The Price of Competing Products. [WRTING]
- So if you assume that the price of...
- actually, I shouldn't say Competing Products,
- I will say the price of Related Products because [WRITING]
- we will see that they are not all competing.
- Price of Related Products ... is one of the things
- that we are assuming is constant when we,
- it‘s been held equal when we show this relationship.
- We're assuming that these other things aren't changing.
- Now what would happen if these things changed ?
- Well, imagine we have other, say other ebooks' price goes up. [WRITING]
- The price of other ebooks go up.
- So what will that do
- to our price quantity demanded relationship ?
- If other ebooks' prices go up,
- now all of a sudden my ebook,
- regardless of what price point we're at,
- at any of the price points,
- my ebook is going to look more desirable.
- At $2, it is more likely that people will want it,
- more people will want it
- because the other stuff's more expensive.
- At $4, more people will want it.
- At $6, more people will want it.
- $8, more people will want it, $10 more people will want it.
- So if this were to happen,
- that would actually shift the entire demand curve to the right.
- So it would start to look something like this...
- it would look something like that.
- We'll call that Scenario 1. That is Scenario 1.
- And these other ebooks,
- we can call them substitutes for my product.
- So this right over here...
- These other ebooks, these are substitutes. [WRITING]
- If, people might say,
- oh you know that other book looks kind of comparable,
- if one is more expensive and one is cheaper,
- maybe I'll read one or the other.
- So, in order to make this statement,
- in order to stay along this curve,
- we have to assume that this thing is constant.
- If this thing changes, this is going to move the curve.
- If other ebooks prices go up,
- it will probably shift our curve to the right.
- If other ebooks‘ prices go down,
- that will shift our entire curve to the left.
- So this is actually changing our demand,
- it’s changing our whole relationship.
- So it‘s shifting demand to the right.
- Let me write that, so this is going to shift Demand... [WRITING]
- so the entire relationship: Demand to the right. [WRITING]
- I really want to make sure you have this point clear.
- When we hold everything else equal,
- we're moving along a given demand curve.
- We are essentially saying: the demand,
- the Price Quantity demanded relationship is held constant
- and we can pick a price
- and we'll get a certain quantity demanded.
- We are moving along the curve.
- If we change one of those things,
- we might actually shift the curve.
- Once we change this demand schedule,
- which will change this curve.
- Now if we...there are other related products,
- they don't just have to be substitutes.
- So for example, let's think about Scenario, a Scenario 2.
- Or maybe the price of a....the price of a Kindle goes up, [WRITING]
- so the price of a Kindle...let me write it this way: [WRITING]
- Kindle's price goes up. [WRITING]
- Now the Kindle is not a substitute.
- People don't either buy an e-book or
- they won't either buy my ebook or buy a Kindle.
- Kindle is a complement, you actually need a Kindle or an Ipad
- or something like it in order to consume my ebook.
- So this right over here, this right over here is a complement.
- It is a complement. [WRITING]
- So if a complement's price becomes more expensive,
- and this is something that...
- one of the things that people might use to buy my book,
- then it would actually, for any given price,
- lower the quantity demanded.
- So in this situation, if my book is $2,
- since fewer people are going to have Kindles,
- or maybe they have used some of their money
- already to buy the Kindle,
- they're gonna have less to buy my book
- or just fewer people will have the Kindle.
- For any given price, it’s going to lower the quantity demanded.
- For any given price.
- And so essentially, it will shift,
- it will change the entire demand curve.
- It will shift the demand curve to the left.
- So this right over here is scenario 2.
- And you can imagine the other way,
- if the Kindle's price went down, then that would shift
- my demand curve to the right.
- If the price of substitutes went down,
- then that would shift my entire curve to the left.
- So you can think about all these scenarios.
- And actually I encourage you to,
- think about and draw them yourselves, think about products...
- could be an ebook or could be some other type of product
- and think about what would happen.
- Well (1) one, think about what the related products are,
- the substitutes and potentially complements
- and then think what would happen as those prices change.
- And always keep in mind, the difference between demand
- which is this entire relationship, the entire curve,
- that we can move along if we hold everything else equal
- and only change price,
- and quantity demanded, which is a particular quantity
- for a particular price holding everything else equal.
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