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  • What I want to do in this video

  • is think about the demand curve

  • for two different products.

  • So this is some laptop

  • that's on the market.

  • And this, let's just say,

  • is the cheapest car

  • that happens to be on the market

  • this is actually a picture of a 1985

  • assuming this is the cheapest car on the market.

  • So let's just think about

  • their hypothetical demand curves right now

  • So once again, on the vertical axis,

  • we're going to put price,

  • and on the horizontal axis,

  • we put quantity,

  • and then over here

  • let me do it for the same thing

  • So this is price,

  • and this right over here is quantity.

  • And both of them satisfy the law of demand

  • if the price is really high

  • the quantity demanded is going to be really low for the laptop

  • and so it might be right over there

  • and if the price is low

  • the quantity demanded is going to increase.

  • So, the demand curve might look something like that.

  • And it doesn't have to be a curve,

  • or doesn't have to be a line,

  • it could be a curve or anything like that.

  • So that is the current demand for the laptop

  • All else equal,

  • so we're not talking about shifting any of those other factors

  • that we've been talking about in the last few videos.

  • Now we can draw a similar demand curve

  • for this very cheap automobile.

  • If the price is high,

  • very few people are going to want to buy it,

  • and I'm not going to specify what the price is,

  • but this is a general idea

  • if the price is higher,

  • fewer people are going to want to buy it

  • If the price is lower,

  • more people are going to want to buy it

  • So this demand curve will also have the same shape

  • from the top left to the bottom right

  • it satisfies the law of demand.

  • So once again, that is the current demand.

  • Now let's think about

  • how the demand for each of these goods might change

  • depending on changes in income.

  • So we're going to focus on the income factor

  • the income effect, for this video

  • and see how these 2 products might change.

  • So let's just assume that

  • income in the general population goes up.

  • So for something like a laptop, wow,

  • if more people are making more money

  • especially in real terms

  • they have more money to spend well

  • for any given price point,

  • at any given price point,

  • there's going to be a higher quantity

  • that's demanded.

  • At any given price point,

  • higher quantity demanded.

  • And so if income goes up for this laptop,

  • the demand will increase.

  • And the way we show demand increasing

  • is the whole curve shifts to the right

  • so this right over here demand increased

  • demand went up when income went up.

  • And this makes complete sense

  • and if income were to go down,

  • demand would go down

  • because people would have less money

  • to buy something like a laptop.

  • And this is the case for most goods

  • we call things like this,

  • when income goes up, demand goes up,

  • whole curve shifts to the right

  • income goes down, demand goes down,

  • whole curve shifts to the left

  • We call this a normal good.

  • So this right over here is a normal good.

  • Now let's think about

  • what happens with the cheapest car on the market.

  • And let's assume we're in a developed country

  • where almost everyone has some form of a car.

  • Now, what happens when income goes up?

  • So people have more money

  • but are they going to spend that money

  • buying the cheapest car on the market?

  • Well, in most cases, if income goes up generally,

  • people say, well I have a little bit more money,

  • maybe I'll buy a slightly nicer car.

  • So, and maybe in particular

  • the people who were going to buy this car

  • at any given price point

  • So this price point,

  • the people who were going to buy the car will say

  • Wait! I can now afford a better car!

  • Why should I you know,

  • this is not safe

  • maybe or not as safe as the other cars,

  • and I want to impress my friends

  • from high school and all that,

  • so something very strange might happen for this car,

  • the demand for this car.

  • It actually will decrease

  • so the whole curve could shift to the left.

  • So income is a very strange thing for this good

  • because income increasing maybe people say,

  • hey you know what,

  • I could trade out of this good

  • I could get a good that

  • I'd rather have than just getting more of this thing right over here

  • Demand went down.

  • And goods like this, we call them inferior goods.

  • And the general way to think about

  • inferior goods are the goods

  • that people will want to not own if they had more money

  • they would want to buy, I guess, less inferior goods.

  • Or another way to think about it is,

  • if income were to go down,

  • and more people are budget strapped

  • and they can't afford

  • the Mercedes-Benz or the BMW

  • or even the mid-sized sedan anymore,

  • so if income were to go down

  • and things were getting tighter,

  • more people would want this car

  • more people would have to trade down to this

  • because they're strapped,

  • they're tightening their belts

  • and so you'll have this strange situation

  • where if income goes down,

  • demand would go up for this thing

  • So income goes down,

  • demand goes up.

  • Remember, we're talking about demand,

  • we're talking about the entire shifting of the curve.

  • At any given price point,

  • the quantity demanded will go up.

  • Because, this is, or we're assuming,

  • is the cheapest car on the market.

  • So, and likewise,

  • if income were to go down for a normal good,

  • it'll do what you'll expect,

  • demand would go down.

  • So this, an inferior good,

  • does the opposite of a normal good

  • when we're talking about the income effect,

  • the inferior good will do the opposite of a normal good

  • and that's because people want to trade out of it

  • when their income goes up

  • or they don't want to buy it

  • or they want to buy something nicer.

  • And when their income goes down,

  • they'll say

  • I have to buy this thing,

  • so you know, let me just do it.

What I want to do in this video

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A2 US demand income price curve price point quantity

Normal and Inferior Goods

  • 45 3
    Bravo001 posted on 2014/10/03
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