Class notes
lecture notes
- Course
- Institution
Lecture notes of 2 pages for the course ECON 101 at UManitoba (lecture notes)
[Show more]
Seller
Follow
workingnazmus
Content preview
Prices of related goods are a crucial determinant of demand for a particular good. When theprice of a substitute for a good rises, the demand for the good increases, as consumers switch
from the more expensive substitute to the relatively cheaper good. For example, if the price of
energy bars increases, consumers may switch to a substitute like granola bars or protein bars,
which can be used in place of energy bars. This substitution effect leads to an increase in
demand for energy bars.
On the other hand, when the price of a complement for a good falls, the demand for the good
also increases, as consumers are now able to purchase the complement and the good together
at a lower price. For example, if the price of bottled water falls, the demand for water bottles
may increase, as consumers can now purchase both items at a lower total cost. This
complementary effect leads to an increase in demand for energy bars.
In economics, these effects are known as the substitution effect and the complementary effect,
respectively. They are important in understanding consumer behavior and the dynamics of
markets.
It is worth noting that the extent to which these effects impact demand depends on a number of
factors, including the availability of substitutes and complements, the degree of substitution or
complementarity, and the income level of consumers. Additionally, the effects may not always
be straightforward, as changes in the price of one good may have indirect effects on the
demand for other goods as well.
Overall, understanding the relationship between prices of related goods and demand is a
fundamental concept in economics, and has important implications for businesses and
policymakers alike.
Expected Future Prices and Demand
When consumers expect the price of a good to rise in the future, they are likely to buy more of it
now to avoid paying a higher price later. This increased demand leads to a rightward shift in the
demand curve, meaning that consumers are willing and able to buy more of the good at any
given price. The opposite is also true: if consumers expect the price of a good to decrease in the
future, they may delay their purchases, leading to a leftward shift in the demand curve.
Income and Demand
When consumers' income increases, they have more purchasing power and are able to buy
more of most goods, leading to a rightward shift in the demand curve. However, this effect is not
the same for all goods. For normal goods, which are goods that consumers consider desirable
and are likely to purchase more of as their income increases, the demand curve shifts rightward.
For inferior goods, which are goods that consumers view as less desirable and are likely to
purchase less of as their income increases, the demand curve shifts leftward.
Factors That Shift Demand
Besides expected future prices and income, there are several other factors that can shift the
demand curve for a good, including:
1. Prices of substitute goods: If the price of a substitute good (a good that can be used in
place of the original good) increases, demand for the original good may increase as
consumers switch to the cheaper option. This leads to a rightward shift in the demand
curve.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller workingnazmus. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.89. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
56326 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now