The company hadnt realized a fundamental problem with

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Unformatted text preview: and down.” Coca-Cola experienced a backlash from consumers. What had gone wrong? The company hadn’t realized a fundamental problem with these taste tests. As it turns out, asking people to decide between a few teaspoons of different sodas is quite different from asking them to decide between entire bottles of soda. Often, when only a small amount of a cola is consumed, people choose the sweeter of the two colas. But when people have to drink larger amounts, they often find that the sweetness they liked in a teaspoon becomes “too sweet” before they finish the What Factor Causes a Change in Quantity Demanded? We identified the factors (income, preferences, etc.) that can cause demand to change, but what factor can cause a change in quantity demanded ? Only one: price. For example, the only thing that can cause customers to change their quantity demanded of 98 Chapter 4 Demand hundreds of teaspoons contained in an entire bottle. Coca-Cola obviously thought that its taste tests indicated a strong demand for New Coke. That interpretation was wrong. What the taste tests actually showed was a strong demand for a few teaspoons of New Coke, not a demand for a six-pack of New Coke, especially when it meant taking old Coke off the market. CocaCola made a mistake in thinking that buyers had a demand for New Coke when they didn’t. On July 11, 1985, Coca-Cola brought old Coke back as Classic Coke. And over time it did away with New Coke. THINK ABOUT IT What might Coca-Cola have done during its taste test to reduce the chances of making such a costly mistake? orange juice is a change in the price of orange juice; the only thing that can cause a change in the quantity demanded of pencils is a change in the price of pencils. As we stated earlier, a change in demand is represented as a shift in the demand curve. The curve moves either right or left. See Exhibit 4-4(a). So how do we represent a change in quantity demanded? When quantity demanded changes, the curve doesn’t 04 (086-109) EMC Chap 04 EXHI BIT 11/17/05 4-4 4:36 PM Page 99 A Change in Demand Versus a Change in Quantity Demanded Price Price B A D2 D1 0 D1 0 Quantity demanded (a) Quantity demanded (b) (a) A change in demand refers to a shift in the demand curve. A change in demand can be brought about by a change in a number of factors (income, preferences, prices of related goods, number of buyers, future price). (b) A change in quantity demanded refers to a movement along a given demand curve, which is brought about only by a change in the price of the good. move right or left. Instead, the only movement is to a different point along a given demand curve, which stays in the same place on the graph. See Exhibit 4-4(b). Ian notices that the price of bananas has fallen; as a result, he goes from buying three bananas a week to buying five bananas a week. An economist would say EXAMPLE: Defining Terms 1. Define: a. normal good b. inferior good c. substitute d. neutral good e. complement Reviewing Facts and Concepts 2. Explain what it means if demand increases. 3. Jerry, a comedian, started out doing stand-up comedy and went on to perform on a popular hit that Ian’s quantity demanded of bananas has increased (from three to five) as a result of the price of bananas falling. E X A M P L E : The price of a book was $10 in July and Jeff bought three. The price was $10 in August and Jeff bought four. Economists would say that Jeff ’s demand for books increased between July and August. television series. As he went from stand-up comedian to TV star, his income increased substantially. During this time, he bought more cars (specifically, Porsches) to add to his collection. For Jerry, what kind of good are Porsches? Critical Thinking 4. Identify a good that is a substitute for one good and a complement for another. (Hint: A CocaCola may be a substitute for a Pepsi and a complement for a hamburger.) Applying Economic Concepts 5. In recent years the price of a computer has fallen. What effect is this price change likely to have on the demand for software? Explain your answer. 6. Graph the following: a. an increase in demand b. a decrease in demand Section 2 The Demand Curve Shifts 99 04 (086-109) EMC Chap 04 11/17/05 4:37 PM Page 100 Too Good to Be True? Y ou just learned that buyers’ expectations about future prices can affect current demand. If computer buyers think computer prices will be higher next year, they might buy their computers now (at the lower price) instead of next year (at the higher price) Buyers who think computer prices will be lower next year, might hold off buying this year, thinking they will get a lower price next year. Don’t Forget Beanie Babies Now think back to 1998. In that year, many people in the United States were buying Beanie Babies (a small stuffed animal). They believed that Beanie Babies would become The Tulip Example Similar thinking has been affecting prices and demand for hundreds of years. In the 1600s in Holland, for example, a tulip craze became so frenzied that some people sold their collectors’ items, and tha...
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This document was uploaded on 01/16/2014.

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