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Current time:0:00Total duration:5:19
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Video transcript

I sensed some confusion coming out of the last video an inferior good so I thought I would do another one so let's make let's assume that there's three cars in the market and what I want to do this is I sense that some people thought that I was suggesting that a car in general isn't inferior good and that's not what I was saying I was saying if we lived in a reality where everyone owned a car a car was a necessity for life and that is true in much of the developed world I was saying that the cheapest car in the market might be considered an inferior good and to think about that let's just think about the entire population so let's say this line this line represents the entire population in our place in our developed country where everyone owns a car and let's say let's say let's represent this car with blue so let's say maybe a third of the people a third of the people right now have that car let's say a good chunk of the people have this midsize sedan this is probably the car that most people most people would like to have it's a little bit safer it's a little bit larger so it's a more powerful engine and so this is where most people are sitting this is where most people are sitting and then you have this ultra this kind of luxury you have this luxury car or Rolls Royce maybe and so that a very small segment so this end of the this end of the line is the poor so this is the poor in our population and this is the rich this is the rich right over here so this is at some given income level and maybe we could we could say this is true at a particular price point but we'll see what we're going to talk about is the general impact on demand so on the entire curve at any given price point always assuming that this is the most expensive this is in between and this is the least expensive now what happens if income goes up from here income goes up well the very poorest they're not going to be able to necessarily just trade up to this midsize sedan yet although they'll maybe have more income for other things or maybe they can get a nicer version of this but for the most part they're still going to be driving this car but at kind of the boundary right over here if incomes do go up there will be people who now can afford the midsize car and that's what they want and so these people might start buying the mid-sized car and then what will happen over here well maybe there's a few people at the boundary over here they now have the money to afford this very expensive car and it suits their taste and so they also a very small proportion also grows there so what happened here when income went up income went up the quantity demanded the quantity demanded demanded at a particular price point for this smallest car went down but the demand for this mid-sized car went up it took a much bigger chunk out of this blue than a chunk was taken out of it by the orange and also the demand for this very expensive car and this very expensive car went up and that was it at a particular price point but assuming that this is the most expensive this is the the middle and this is the cheapest expensive this would be true of probably any price point and so we have this phenomenon that when income went up the quantity demanded at multiple price points for this car so let me draw its actual demand curve so this car right over here this is price this over here is demand if it's old demand curve looks something like this if it's old demand curve looks something like this we're saying and maybe you know when we thought about this at first we're thinking of we were thinking of the price point right over here we noticed when income went up at that particular price point the quantity demanded went down and that would be true pretty much any price point assuming that this was that this is always the cheapest car so at any price point you would have a decrease in demand when remember when we talk about a decrease in demand we're talking about a shift of the entire curve we're not talking about just one particular quantity now there's another interesting question that was asked and and it goes a very it was it's a very nice and subtle thing to think about I keep drawing these shifting demand curves and if at least I understand the question properly the question is well does the Ault does a curve when it shifts does doesn't necessarily shift perfectly or - sometimes it change does it shift more at one price point or another and the simple answer is it can it in fact in very few circumstances would it we be a perfect shift depending on the price point you're at it would probably shift a little bit different so the actual shape of the curve might change while it's shifting but anyway going back to this so we see that this this this cheap car right here had the unusual property that when incomes went up the demand curve shifted to the left and that's why that's why we call this an inferior good these other two cars these other two cars when so that's price and this is demand these other two cars when income went up so if this was the demand curve at first if this is the demand curve at first when income went up demand went up the whole curve got shifted to the right so they are normal so this these are normal goods