A change in preferences away from a good shifts the

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Unformatted text preview: nces in favor of a good shifts the demand curve to the right. A change in preferences away from a good shifts the demand curve to the left. People begin to favor (prefer) small, gas-efficient cars more than they did in the past. As a result, the demand curve for small, gas-efficient cars shifts rightward. At the same time, people may begin to favor several new brands of computers and stop buying Dell computers, which had been the most popular computer for several years. As a result, the demand curve for Dell computers shifts leftward. EXAMPLE: Prices of Related Goods Demand for goods is affected by the prices of related goods. The two types of related goods are substitutes and complements. When two goods are substitutes, the demand for one good moves in the same direction as the price of the other good. In other words, if the price for a good, say peanuts, goes up, the demand for that good’s substitutes, say pretzels, will also go up. For many people coffee is a substitute for tea. Thus, if the price of coffee increases, the demand for tea increases as people substitute tea for the higher-priced coffee. Jessica is in the supermarket looking at the soft drinks. She usually buys a six-pack of Coke a week. She notices that the price of Coke has risen from what it was last week. So, instead of buying a sixpack of Coke, she buys a six-pack of Pepsi. For Jessica, Coke and Pepsi are substitutes, which means that as the price of Coke goes up, so does Jessica’s demand for Pepsi. EXAMPLE: Two goods are complements if they are consumed together. For example, tennis rackets and tennis balls are used together to play tennis. With complementary goods, the demand for one moves in the opposite direction as the price of the other. As the price of tennis rackets rises, for example, the demand for tennis balls falls. Other examples of complements (or complementary goods) include cars and tires, lightbulbs and lamps, and golf clubs and golf balls. Number of Buyers The demand for a good in a particular market area is related to the number of buyers in the area. The more buyers, the higher the demand; the fewer buyers, the lower the demand. The number of buyers may increase because of a higher birthrate, increased immigration, or the migration of people from one region of the country to another. Factors such as a higher death rate or the migration of people can also cause the number of buyers to decrease. If Southwest Airlines expects the price of fuel to rise, and decides to buy fuel now instead of later, what will happen to the current demand for fuel? Future Price Buyers who expect the price of a good to be higher in the future may buy the good now, thus increasing the current demand for the good. Buyers who expect the price of a good to be lower in the future may wait until the future to buy the good, thus decreasing the current demand for the good. Suppose Brandon is willing and able to buy a house (demand exists), but he thinks the price of houses on average will be lower next month. As a result, Brandon is likely to hold off on making a purchase, which has the effect of decreasing current demand. substitute A similar good. With substitutes, the price of one and the demand for the other move in the same direction. complement A good that is consumed jointly with another good. With complements, the price of one and the demand for the other move in opposite directions. Section 2 The Demand Curve Shifts 97 04 (086-109) EMC Chap 04 11/17/05 4:36 PM New Coke, Classic Coke, or Pepsi? ?????????????????? I n the early 1980s, the Pepsi company started asking people to take the “taste test.” The taste test consisted of two small paper cups with a few teaspoons of Coke in one cup and a few teaspoons of Pepsi in the other. Members of the public didn’t know which cup contained Pepsi and which cup contained Coke. It is important to note here that Pepsi is a slightly sweeter cola than Coke. Members of the public were asked to drink the contents of both cups and then state which cola they preferred. Pepsi won the “taste test” more often than Coke. This news scared Coca-Cola, which, at the time, was holding on to a small lead in sales over Pepsi. Coca-Cola decided to undertake its own taste test. During its taste test, it experimented with the taste of Coke. One option consisted of sweetening the taste of Coke to lure more teenagers to its brand. In its own taste tests, Coca-Cola learned that its new, sweeter Coke Page 98 was beating Pepsi. In other words, Coca-Cola thought it had found the way to gain market share in the soft drink market. So, it undertook to replace its old, original Coke with what was called “New Coke.” On April 23, 1985, Coca-Cola launched New Coke. It was a disaster. Coke consumers across the country turned their backs on New Coke. One person said replacing the old Coke with New Coke was like “spitting on the flag.” Another said, “At first I was numb. Then I was shocked. Then I started to yell and scream and run up...
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This document was uploaded on 01/16/2014.

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