More Demanding issues

1
More Demand-ing issues

• Demand curve on ICT

2
Substitutes and Complements

• Substitutes are goods in competitive demand
• They are replacements for another product
• For example, a rise in the price of Esso petrol
  (other factors held constant) should cause a
  substitution effect away from Esso towards Shell
  or other competing brands
• Complements are said to be in joint demand
• Examples include fish and chips, DVD players and
  DVDs, iron ore and steel
• A rise in the price of a complement to Good X
  should cause a fall in the demand for X

3
Normal and Inferior Goods

• For normal products, more is demanded as income
  rises, and less as income falls
• There are exceptions called inferior products

4
Normal and Inferior Goods
Cards Sort your cards into NORMAL and INFERIOR

• They are often cheaper poorer quality substitutes
  for some other good. Examples include
  black-and-white television sets, cigarettes,
  white bread and several other basic foods.
• With a higher income a consumer can switch from
  the cheaper substitute to preferred alternative
• As a result, less of the inferior product is
  demanded at higher levels of income

5
Exceptions to the law of demand
Which goods are ostentatious with your
cards?
What are your Ostentatious goods?

• Ostentatious consumption
• Some goods are luxurious items where satisfaction
  comes from knowing both the price of the good and
  being able to flaunt consumption of it to other
  people!
• Speculative Demand
• The demand for a product can be affected by
  speculative demand. Here, potential buyers are
  interested not just in the satisfaction they may
  get from consuming the product, but also the
  potential rise in market price leading to a
  capital gain or profit

6
Changes in the Price of Substitutes
Price of Texaco petrol
Price of Shell petrol
P2
P1
P1
D2
Demand
D1
Q1
Q2
Q1
Q2
Output (Q)
Output (Q)
7
Changes in the Price of Complements
Price of DVD Players
Price of Pre-recorded DVDs
P1
P2
P1
D2
Demand
D1
Q1
Q1
Q1
Output (Q)
Output (Q)
8
Your go

• Use the internet worksheet to play with
  Demand.
• www.bized.ac.uk
• www.tutor2u.com
• Go to economics markets demand activity.
• What if scenarios - 1.35_demand curve on bized
  worksheet.doc

9
Homework

• Homework read! Unit 4 (p22 27)
• Do Q 1 3 boxes.
• Due in Monday!