Price of related products and demand | Microeconomics | Khan Academy | Summary and Q&A

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December 30, 2011
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Price of related products and demand | Microeconomics | Khan Academy

TL;DR

The price of related products can influence the demand curve: if substitutes become more expensive, demand shifts to the right, while if complements become more expensive, demand shifts to the left.

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Key Insights

  • 👮 The law of demand states that price and quantity demanded have an inverse relationship.
  • ❓ The price of related products, such as substitutes or complements, can impact demand for a particular product.
  • 🥺 An increase in the prices of substitutes leads to an increase in the quantity demanded, shifting the demand curve to the right.
  • 🥺 An increase in the prices of complements leads to a decrease in the quantity demanded, shifting the demand curve to the left.
  • 📅 Changes in related product prices can affect both the demand schedule and the overall demand curve.
  • ❓ The concept of substitutes and complements is crucial in understanding the relationship between price and quantity demanded.
  • 🥹 When analyzing demand, it is important to consider the factors held constant and the potential impact of changes in related product prices.

Transcript

We've talked a little bit about the law of demand which tells us all else equal, if we raise the price of a product, then the quantity demanded for that product will go down. Common sense. If we lower the price, than the quantity demanded will go up, and we'll see a few special cases for this. But what I want to do in this video is focus on these o... Read More

Questions & Answers

Q: How does the law of demand impact the price-quantity demanded relationship?

The law of demand states that as price increases, quantity demanded decreases, and vice versa. This relationship holds true as long as other factors remain constant.

Q: What happens when the prices of substitutes increase?

When the prices of substitutes increase, the demand for the product in question increases as well. This is because the substitute products become less desirable or more expensive, making the original product relatively more attractive.

Q: How does a change in the price of complements affect quantity demanded?

If the price of complements, such as a Kindle for ebooks, increases, the quantity demanded for the ebook will decrease. This is because fewer people will have the complement product or have less money to spend on the original product.

Q: How do changes in the prices of related products affect the demand curve?

Changes in the prices of related products can shift the demand curve. If the prices of substitutes increase, the demand curve shifts to the right. If the prices of complements increase, the demand curve shifts to the left.

Summary & Key Takeaways

  • The law of demand states that raising the price of a product decreases quantity demanded, while lowering the price increases it.

  • The price of related products, such as substitutes or complements, is assumed to be constant when analyzing the price-quantity demanded relationship.

  • If the prices of substitutes increase, demand for the product in question goes up, shifting the demand curve to the right. On the other hand, if the prices of complements increase, demand shifts to the left.

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