What effect will each of the following have on the demand for small automobiles such as the Mini

What effect will each of the following have on the demand...

Key Concepts

Consumer Expectations

Consumer expectations pertain to beliefs about future market conditions and prices. When consumers anticipate that the price of a good will drop in the near future, they may delay their purchases, leading to a decrease in current demand as they wait for the favorable pricing.

Income Effects and Inferior Goods

This concept describes how changes in consumers' income levels affect the demand for goods. For normal goods, a decline in income reduces demand, but for inferior goods, demand increases when income falls. In this scenario, if small automobiles are considered an inferior good, a decline in income will result in higher demand for them.

Complementary Goods

Complementary goods are products that are often used together, meaning that a change in the price of one can affect the demand for the other. A drop in the price of gasoline, which is a complement to vehicles, can alter the demand for automobiles. In this case, if lower gasoline prices make larger vehicles more attractive or lessen the need for fuel-efficient small vehicles, the demand for small automobiles may decrease.

Consumer Preferences

This concept refers to the way consumer tastes and trends can shift, leading to an increase or decrease in the demand for a product. When a product becomes more fashionable or popular, as in the case where small automobiles become more fashionable, consumers are more willing to purchase them, thereby shifting the demand curve to the right.

Substitute Goods

Substitute goods are products that can be used in place of each other. When the price of a substitute product, like large automobiles, increases, consumers may switch their demand to the relatively cheaper alternative—small automobiles in this case—causing an increase in demand for them.

Transcript

00:01 All right, so today we're going to be applying a bit of our demand curve knowledge and see how external activities shifts the actual demand curve for certain products, right? and what goes into the change of demand for that fit? right.

00:16 So for these, let's see, we have five examples.

00:20 For these five examples, we're going to be assuming that we're looking at the demand for small automobiles, such as a mini cooper or a smart car.

00:27 Okay.

00:28 So let's get on with the first example.

00:30 Small automobiles become more fashionable.

00:34 So when dealing with these kind of questions, it is never a bad idea that just simply tell the supply demand curve and actually map out your thinking just to be more efficient when i answer these questions.

00:49 All right.

00:49 So when certain good gets more fashionable, it is obvious that more consumers will be willing to spend money on it, right? they want to be more fashionable.

00:57 And therefore, the demand for that product will increase.

01:01 So we'll see an upward shift in demand because the small cars that we're talking about is more fashionable, right? the demand goes up.

01:13 So this basically means so when the price is constant for the good, right, we will see more quantity purchased for small automobiles, right? because there's more fashionable and because consumers want to purchase more of the small automobiles.

01:29 All right.

01:31 So next question.

01:33 The price of large automobiles rises with the price of small automobiles remaining the same.

01:38 All right.

01:39 So what we like to think when i answer this question is that large automobiles and small automobiles are substitutes.

01:51 Right.

01:52 We're assuming we're looking at the very raw data here.

01:56 So we're assuming that all the functionality and, i don't know, look at the look.

02:00 Are the same.

02:01 All of these is the size, right? so when the size, sorry, when the price of the bigger size car goes up, consumers will look to substitute to other products, right? and in this case, they will substitute to small automobiles.

02:17 So even though the price remains the same, the demand of the small automobiles will go up because the immediate substitute bid, which is large automobiles, the price of it is going up.

02:31 The price is remaining constant.

02:33 All it is that quantity demand increases, right? so it's an increase in demand.

02:40 All right.

02:41 Next question here.

02:44 Income declines and small automobiles aren't inferior good.

02:48 So let's break down inferior good.

02:51 What inferior good is is a certain product that when your income rises, you will buy less of that product.

02:58 A common example that you're already going to do is spam meat, right? i'm sure you guys have heard of it.

03:05 It is like a cheap alternative meat that it's not very great quality, but it costs, it's very, very inexpensive.

03:15 And when you start to make more money and your income grows higher, you don't want to really spend your money on cheaper products.

03:23 You'll go for more fresh, more high quality ingredients, like, i don't know, fresh meat or straight from the butcher, i don't know.

03:30 But you won't be spending your money on less alternatives.

03:37 So we're assuming that small automobiles are these inferior goods...

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