If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

Main content
Current time:0:00Total duration:4:34

Change in expected future prices and demand

AP.MACRO:
MKT‑2 (EU)
,
MKT‑2.B (LO)
,
MKT‑2.B.1 (EK)
AP.MICRO:
MKT‑3 (EU)
,
MKT‑3.B (LO)
,
MKT‑3.B.1 (EK)

Video transcript

we've been talking about the law of demand and how if we hold all else equal a change in price of price goes up the quantity demanded goes down and if price goes down the quantity demanded goes up so if you hold all else equal ceteris paribus we are just moving along this curve depending on what price but we started talking about is what happens when you change some of those things that we've been holding equal how does that change demand in the last video we talked about the price of related goods price of related goods and if the price of related Goods change both complements and substitutes how that might change the in that how that might increase or decrease demand the entire curve not just one particular scenario now let's talk about let's talk about another one of those factors that we've been holding constant and think about how that would change demand the entire curve if we were to change that and that's that's expectations of future prices I'll do that in the screen so expectations expectations of future prices of future future prices so let's say that let's talk about a first scenario right over here where let's say that this curve people didn't expect prices to change for my eBook and now all of a sudden people expect that there's a change in expectation now all of a sudden they expect the prices to go up going forward so now now now expect expect the future price the future price to go up what's going to happen if you expect the future price to go up and the good or the product in question is something that you can store well and depending on how much you expect you to go up you're probably more likely to buy it now buy it before the price goes up so regardless of what point on this curve we're at regardless of the price point at any one of those price points people now because they want to instead of buying it later they want to buy it now they are more the current demand will go up at any of these price points so at two dollars more people will want to buy it because they think it's going to go up at four dollars more people want to buy because they think it's going to go at any of these price points because now there's an X the expectations have gone from being neutral to now expecting prices to go up it will shift the entire curve to the right so this will shift the entire curve to the right so this right over here is scenario one and depends how much this changes to say how much this shifts to the right this is just the general idea this is generic scenario one and the shifting of the entire curve you could say they increased demand so this is literally demand increasing demand demand increased and when we talk about demand remember and I'm you're probably tired of me saying this I'm not talking about a particular quantity I'm talking about the entire curve shifting to the right because people expect future prices to go up so the current demand went up the current demand curve shifted to the right and now we can just take the other side of that imagine what happens in scenario two before people were neutral that was our curve right there they didn't have any opinion about whether future prices were going to go up or down or maybe they just assumed they were going to stay the same and now they expect future prices to go down now expect future prices future prices to go down and this is something that happens in consumer electronics all the time you see whenever you buy a laptop or any type of electronics device you we now assume that the prices will go down now what we're talking about is a change in expectations so you're going from neutrality or let's say you're going from you expect them to go down but now you expect them to go down even faster and if all of a sudden expect them to go down even faster you're even less likely to buy them now so if you expect if before you thought prices were going to be roughly constant and now you expect them to go down now you're going to say well hey at any given price point why don't I just hold off a little bit and and and wait a little bit so it's going to lower demand so in this scenario the whole curve will shift to the left at any given price point the quantity demanded will go down at any point of that curve and so the entire demand curve will be shifted to the left so because of scenario two demand demand and was decreased demand was decreased
AP® is a registered trademark of the College Board, which has not reviewed this resource.