We've talked a little bit
about the law of demand which tells us 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, than the
quantity demanded will go up, and we'll see a few
special cases for this. But 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. So if you assume that
the price of-- actually I shouldn't say
competing products, I'll say the price
of related products, because we'll see that
they're not competing. The price of related
products is one of the things that we're assuming is constant
when we, it's beheld 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,
say, other ebooks-- books is price-- price goes up. 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's more likely
that 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, at
$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. That is scenario one. And these other ebooks,
we can call them substitutes for my product. So this right over here,
these other ebooks, these are substitutes. People might say, oh, you
know, that other book looks kind of comparable, if
one is more expensive or 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'll 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. So let me write that. So this is going
to shift demand. So the entire relationship,
demand, to the right. I really want to make sure
that you have this point clear. When we hold
everything else equal, we're moving along a
given demand curve. We're 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're moving along the curve. If we change one
of those things, we might actually
shift the curve. We'll actually change
this demand schedule, which will change this curve. Now, there other
related products, they don't just have
to be substitutes. So, for example, let's
think about scenario two. Or maybe the price
of a Kindle goes up. Let me write this this way. Kindle's price goes up. Now, the Kindle is
not a substitute. People don't either buy an
ebook or they won't either buy my ebook or a Kindle. Kindle is a compliment. You actually need a Kindle or
an iPad or something like it in order to consume my ebook. So this right over
here is a complement. So if a complement's price
becomes more expensive, and this is one of
the things 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 since maybe they
used some of their money already to buy the
Kindle, they're going to have less to
buy my book or just fewer people will have the Kindle,
for any given price is going to lower the quantity demanded. And so it'll
essentially will shift, it'll change the entire demand
curve will shift the demand curve to the left. So this right over
here is scenario two. And you could 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 the scenarios, and actually I encourage you to. Think about drawing yourself,
think about for products, that could be an ebook or could
be some other type of product, and think about
what would happen. Well, one, think about what
the related products are, the substitutes and potentially
complements, and then think about what 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 our particular price holding everything else equal.