Saturday, September 19, 2015

Determinate of Demand - Substitutes - Siu Mai vs Har Gow

Substitutes - Siu Mai (HK) vs. Har Gow
(Pork & Mushroom dumpling vs. Shrimp dumplings)

Substitutes are two goods that can be substituted for one another. Usually the substitution happens when the price of one good increases/decreases making the other good a better/worse purchase.

We tend to substitute one good for another to increase/maintain our purchasing power.
The substitution effect reinforces the income effect.

Remember that the 3 reasons the demand curve slopes downward are the:

Income effect - as the price of a good increases our purchasing power decreases, or when prices decrease we tend to buy more stuff (or purchasing power increases)

Substitution effect - When the price of one good increases we substitute a cheaper good to maintain our purchasing power.

Diminishing Marginal Utility - the more we consume the lower the price must be to entice us to consume more as our satisfaction, benefit, value, happiness falls with each unit of consumption.

Siu Mai - Siu Mai Wikipedia

Ha Gow - Har Gow Wikipedia

AP question - The price of Siu Mai increases what happens to the demand curve for Har Gow?
If the price of Siu Mai increases people will substitute Har Gow as it is relatively cheaper. Thus the demand curve for Har Gow will shift rightward to show an increase in demand at all prices.

AP Question - The price of Siu Mai decreases what happens to the demand curve for Har Gow?
The price of Siu Mai has fallen and is therefore relatively cheaper than Har Gow. The demand curve for Har Gow will shift leftward/decrease as the cheaper price of Siu Mai attracts consumers away from the consumption of Har Gow. Less is demanded at every price.

Determinate of Demand - Compliments - Vada Pav and Coriander/Peanut Chutney

Compliments are two goods that are consumed usually with each other.
Compliments are usually introduced in the determinants of demand section, paired with substitutes

Today I want to introduce Vada Pav and Peanut and/or Coriander Chutney as compliments.

This is an Indian dish eaten on the streets and in the homes of Mumbai, India.

Here is a video of Nisha teaching how to create the Vado Pav with its chutney compliments.

Think,  potatoes deep-fried with spices and chutney spread on a bun.

Link at wikipedia - Vada Pav

So compliments are two goods that are usually consumed together. The AP asked this question with one good's (Vada Pav) price rising and then asks how this affects the demand curve for the second good.

Example - The price of Vada Pav has increased, how does this effect the demand curve for peanut/coriander chutney.

Obviously, when the price of a good increases this causes a change in the Qd (quantity demand) not the demand curve of the good whose price changed. A change in price affects the quantity demanded not the demand.

BUT, the second part of the question asks what happens to the demand curve for peanut/coriander chutney.

AND, since Peanut/Coriander chutney is eaten with Vada Pav the quantity demanded (consumption) of one will affect the consumption of the other.

Price increases for Vada Pav and therefore the Qd of Vada Pav decreases, it seems reasonable that with less (a decrease) of Vada Pav being consumed that the demand for peanut/coriander chutney would decrease.

So less graph that with a CLG (Correctly Labeled Graph)

Thinking, explanation - less Vada Pav consumed - less peanut/coriander chutney demanded.

AP 1995 question
Answer - (E) Complementary

AP 2005 (I believe)
Answer - (B) X & Y are complementary goods

AP Question

Answer - (B) An increase in the price of potatoes, if potatoes and beef are complimentary goods.