ECON 1010 Lecture Notes - Lecture 14: Ceteris Paribus, Complementary Good, Pricing Strategies

• School: University of Manitoba
• Department: Economics
• Course: ECON 1010
• Professor: Sarrah Vakili

Document Summary

Substitutes: with substitute goods such as brands of cereal or washing powder, an increase in the price of one good will lead to an increase in demand for the rival product. Cross price elasticity for two substitutes will be positive. For example, in recent years, the prices of new cars have been either falling or relatively flat. As the price of new cars relative to people"s incomes has declined, this should increase the market demand for new cars and (ceteris paribus) reduce the demand for second hand cars. We can see that there has been a very marked fall in the prices of second hand cars. Complements: with goods that are in complementary demand, such as the demand for dvd players and dvd videos, when there is a fall in the price of dvd players we expect to see more. Dvd players bought, leading to an expansion in market demand for dvd videos.