TPO 12 - Question 6

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TPO 12 - Question 6

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In the lecture, the professor talks about how the demand for a product can be affected by the price of another product. When one product is similar enough to replace the other, they are called substitute goods. Take butter and margarine for example, because they are very similar, when the price of either one is increased, the demand of the other would also increase. The second kind of products are called complement goods, which are products that can’t be used without one another. Take the CD player and CDs for example, because you need both products in order to use either, when the price of CDs goes up, the demand for both is likely to decrease, the same happens vise versa.

1. So when we talk about the demand for a product, we are referring to how much consumers want to buy it, right?
2. And often the demand for a product is influenced by its price - the more expensive it becomes the less chance that people will want to buy it.
3. OK, but, um that's not the whole story.
4. Sometimes the demand for a product can also be influenced by the price of other related products.
5. First, there are those products called substitute goods.
6. If products can be substituted for one another, then, um, well, then they are called substitute goods.
7. They are similar enough to be interchangeable.
8. And an increase in the price of one means an increase in the demand for the other, like…like butter and margarine.
9. They are pretty much used for the same purposes.
10. Margarine are butter substitute and you can bake equally well with either.
11. Well, when the price of butter goes up, it becomes less affordable and so what will people do?
12. They buy margarine instead, right?
13. So, uh, you see an increase in the price of butter increases the demand for margarine.
14. Now another instance where the price of one product can influence the demand of another is when you have two products that can't be used without each other.
15. Those products, we call complement goods - they complement, or uh, complete each other if you will like compact discs and compact disc players.
16. You need both products in order to use either.
17. So if the price of either product increases, demand for both is likely to decrease.
18. And if the price of CDs goes up, well, demand for them will go down, right?
19. And because CDs and CD players complement each other, what will also happen is that the demand for CD players will go down too.