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Unformatted text preview: While we cannot be absolutely certain about the net result, in general, the substitution effect is stronger than the income effect. That is, when the price of hamburgers goes up, you will most likely eat fewer hamburgers and more hot dogs, since the change in relative prices (substitution effect) affects you more than the perceived change in your income (income effect). Another factor influencing demand is one which marketers and advertisers are always trying to understand and target: buyers' preferences. What do people like? When and how do they like it? Still looking at soda, it makes sense that people drink more soda when it's hot, or when they're eating a meal, or when they've been exercising. In these cases, buyers' preferences have changed: they want the soda more, and are therefore willing to pay more for the same good. Likewise, if it's snowing, fewer people will crave a willing to pay more for the same good....
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This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.
- Fall '11