Price of related products and demand | Microeconomics | Khan Academy

published on July 13, 2020

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 and the quantity demanded will go up and we'll see so a few special

Cases for this but what I want to do in this video is focus on these other things that we've been holding equal the things that allow us to make this statement that allow us to move along this curve and think about if we were to

Change one of those things that we were otherwise considering equal how does that change the actual curve how does that actually change the whole the whole quantity demanded price relationship and so the first of these that I will focus

On the first of is the price of competing products the price of competing competing products so if you assume that the price of actually I shouldn't say competing products I'll say the price of related products

Because we'll see that they're not all they're not all competing the price of related the price of related products is one of the things that we're assuming is constant when we it's being held equal when we show this relationship we're

Assuming that these other things aren't changing now what would happen if these things changed well imagine imagine we have other say other ebooks other other ebooks other ebooks books is price price goes up the

Price of other ebooks go up so what will that do to our price quantity demanded relationship if other ebooks prices go up now listen my ebook regardless of what price point we're at at any of the price points my ebook is going to look

More desirable at $2 it's more likely that people will want it more people will want it because the other stuffs more expensive at $4 more people want it at $6 more people want it $8 more people will want it $10 more people want it so

If this were to happen that would actually shift the entire demand curve to the right so it would start to look something like this it would look something like that we'll call that will call that

Scenario that is scenario one and these other ebooks we can call them substitutes for my product so this right over here these other ebooks these are substitutes substitutes substitutes if people might say oh you know that other

Book looks kind of comparable if one is more expensive as one is cheaper maybe I'll read one or the other so in order to make this statement in order to stay along this curve we have to assume that this thing is constant if this thing

Changes this is going to move the curve if other ebooks prices go up it'll probably shift our curve to the right if other ebooks prices go down that will shift our entire curve to the left so this is actually changing our

Demand it's changing our whole relationship so shifting demand to the right so let me write that so this is going to shift shift demand demand so the entire relationship demand to the right I really want to make sure you

Have this point clear when we hold everything else equal we're moving along a given demand curve we're essentially saying the demand the the price quantity demanded relationship is held constant and we can pick a price and we'll get a

Certain quantity demanded we're moving along the curve if we change one of those things we might actually shift the curve well if you change this demand schedule which and/or change this curve now if we there are other related

Products they don't just have to be substitutes so for example let's think about scenario a scenario to where maybe the price of a the price of a Kindle goes up so the price of a Kindle the price Kindles let me write this this way

Kindles price Kindles price goes up now the Kindle is not a substitute people don't either buy an e-book or they won't either buy my ebook or buy a Kindle Kindle is a complement you actually need a Kindle or an iPad or something like it

In order to consume my ebook so this right over here this right over here is a complement it is a compliment so if a compliment price becomes more expensive and this is something that's one of the things

People might use to buy my book then it would actually for any given price lower the quantity demanded so in this situation if my book is $200 since fewer people are going to have Kindles or maybe they've used some of their

Money already to buy the Kindle there they're going to have less to buy my book or they'll just fewer people will have the Kindle for any given price it's going to lower the quantity demanded for any given price and so it essentially

Will shift it'll change the entire demand curve it'll shift the demand curve to the left so this right over here is scenario two and you can imagine the other way if the Kindles price went down then that would shift my demand

Curve to the right if the price of substitutes went down then that would shift my entire curve to the left so you can think about all the scenarios and actually I encourage you to think about draw Emmure self think about for

Products it could be an e-book or it could be some other type of product and think about what would happen well one think about what the related products are the substitutes and potentially complements and then think

What would happen as those prices change and always keep in mind the difference between demand which is this entire relationship the entire curve that we can move along if we hold everything else equal and only change price and

Quantity demanded which is a particular quantity for a particular price holding everything else equal

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