00 7 d 200 17 e 250 5 e 250 15 a change in any

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 7 D' 2.00 17 E 2.50 5 E' 2.50 15 A change in any influence on buyers’ plans other than the price of the good itself results in a new demand schedule and a shift of the demand curve. A change in income changes the demand for energy bars. At a price of $1.50 a bar, 10 million bars a week are demanded at the original income (row C of the table) and 20 million bars a week are demanded at the new higher income (row C '). A rise in income increases the demand for energy bars. The demand curve shifts rightward, as shown by the shift arrow and the resulting red curve. animation The prices of related goods Expected future prices Income Expected future income and credit Population Preferences C' B 1.00 57 Prices of Related Goods The quantity of energy bars that consumers plan to buy depends in part on the prices of substitutes for energy bars. A substitute is a good that can be used in place of another good. For example, a bus ride is a substitute for a train ride; a hamburger is a substitute for a hot dog; and an energy drink is a substitute for an energy bar. If the price of a substitute for an energy bar rises, people buy less of the substitute and more energy bars. For example, if the price of an energy drink rises, people buy fewer energy drinks and more energy bars. The demand for energy bars increases. The quantity of energy bars that people plan to buy also depends on the prices of complements with energy bars. A complement is a good that is used in conjunction with another good. Hamburgers and fries are complements, and so are energy bars and exercise. If the price of an hour at the gym falls, people buy more gym time and more energy bars. Expected Future Prices If the price of a good is expected to rise in the future and if the good can be stored, the opportunity cost of obtaining the good for future use is lower today than it will be when the price has increased. So people retime their purchases—they substitute over time. They buy more of the good now before its price is expected to rise (and less afterward), so the demand for the good today increases. For example,...
View Full Document

This note was uploaded on 04/04/2012 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

Ask a homework question - tutors are online