UNIT2-6

Income Effects on Demand

• Income falls by 20%: \Delta Y < 0

• Concert tickets (normal good): \Delta D < 0

• Sting Ray Bay passes (inferior good): \Delta D > 0

• Determinant affected: Income (a determinant of demand).

Tastes and Preferences

• a) Demand for V8: \Delta D_{V8} > 0

• b) Demand for Diet Coke: \Delta D_{DietCoke} < 0

• c) Demand for Dr Pepper: \Delta D_{DrPepper} < 0

• d) Determinant affected: Tastes and preferences.

Complementary Goods: Spaghetti Sauce

• Complementary goods to spaghetti sauce: pasta, garlic bread, parmesan cheese.

Demand for University Education

• a) Demand for University of Illinois from Huntley High School students: $D_{UI} \downarrow$

• b) Enrollment/demand for UI: $D_{UI} \downarrow$; Determinant affected: price of education (tuition).

Demand for Shrimp and Tuna

• a) Demand for shrimp: $D_{shrimp} \downarrow$

• b) Determinant affected: tastes and preferences.

• c) Demand for tuna: $D_{tuna} \uparrow$ (substitute effect).

• d) Determinant telling us tuna demand will be affected: Prices of related goods (substitutes).

Normal vs. Inferior Goods

• a) Normal good: steak.

• b) Inferior good: ground beef.

• c) If income rises: $D_{steak} \uparrow$

• d) If income rises: demand for ground meat would fall (inferior good).

iPhone Price Decrease and Related Goods

• a) Price of iPhones decreases: Quantity demanded of iPhones $\uparrow$

• b) Demand for song downloads: $\uparrow$ (potentially as a complement to owning more iPhones).

• c) Demand for Android phones: $\downarrow$ (substitute effect).

• d) Determinant: Prices of related goods (substitutes and complements).

Sports Tickets: White Sox and Cubs

• a) Ticket price cut for White Sox: Quantity demanded of White Sox tickets $\uparrow$

• b) Demand for Cubs tickets: $\downarrow$ (relative substitutes; fans may switch).

• c) Determinant: Prices of related goods (substitutes).

Examples of Complementary Products

• A Laptop Computer \rightarrow Mouse

• Ice Skates \rightarrow Helmet

• A Guitar \rightarrow Amplifier

• Soccer Ball \rightarrow Cleats

• Nintendo Wii \rightarrow Wii controllers

• Surfboard \rightarrow Leash

Price Changes and Demand for Related Goods

• a) Price of Abercrombie & Fitch jeans up: Demand for other jeans $\uparrow$ (substitute relation).

• b) Price of Sephora Pure lip gloss down: Demand for other lip gloss $\downarrow$ (substitutes).

• c) Price of Oakley sunglasses up: Demand for other sunglasses $\uparrow$ (substitutes).

• Determinant: Prices of related goods (substitutes/complements).

Hot Dog Complements

• Four complementary products negatively impacted by higher hot dog price: buns, mustard, ketchup, relish.

Remote Learning Impact on Demand

• Four products affected by remote learning:

  • Campus housing (dorms) demand $\downarrow$

  • On-campus dining/meal plans demand $\downarrow$

  • Public transportation to campus demand $\downarrow$

  • Printed textbooks (or on-campus bookstore activity) $\downarrow$ (shift to digital)

McPizza Failure Analysis

• a) Educated guess: McPizza failed due to low demand; tastes/preferences shifted away.

• b) Determinant of demand that led to failure: Tastes and preferences.

Product Popularity Evolution

• a) Example of a product that used to be popular and now isn

• b) Why: Tastes/technology shifted to streaming; convenience.

• c) Determinant: Tastes and technology.

Inferior Goods and Normal Good Alternatives

• Inferior goods prompts for normal goods:

  • a) Canned vegetables \rightarrow Fresh vegetables

  • b) Kool-Aid \rightarrow Fresh fruit juice (e.g., orange juice)

  • c) A Bus Pass \rightarrow Private car

  • d) A Futon \rightarrow Sofa

  • e