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Perfect Complements and Substitutes

Perfect Complements and Substitutes. Perfect Substitutes. P. The demand for colas; people drink Coke or Pepsi, depending on which is cheaper. D. Q. Perfect Substitutes. P. If P Coke > P Pepsi Coke gets none of the demand. If If P coke < P Pepsi , Coke gets it all. P Pepsi. D. Q.

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Perfect Complements and Substitutes

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  1. Perfect Complements and Substitutes Lectures in Microeconomics-Charles W. Upton

  2. Perfect Substitutes P The demand for colas; people drink Coke or Pepsi, depending on which is cheaper. D Q Perfect Complements and Substitutes

  3. Perfect Substitutes P If PCoke> PPepsiCoke gets none of the demand. If If Pcoke< PPepsi, Coke gets it all PPepsi D Q Perfect Complements and Substitutes

  4. Perfect Substitutes P Note that this is not a simple shift to the left or right. PPepsi D Q Perfect Complements and Substitutes

  5. Perfect Substitutes P PPepsi PPepsi D Q Perfect Complements and Substitutes

  6. Demand Shifters P D’ D Q Perfect Complements and Substitutes

  7. Perfect Complements The demand for a pair of shoes P Q Perfect Complements and Substitutes

  8. Perfect Complements The demand for a pair of shoes P Ppair = PR + PL Demand for a right shoe Po PL Po - PL Q Qo Perfect Complements and Substitutes

  9. Perfect Complements The demand for a pair of shoes P Ppair = PR + PL Po PL Po - PL Q Qo Perfect Complements and Substitutes

  10. Lessons Learned • We can tell a lot from demand functions • And, to tell the truth, we can tell a lot about demand functions. Perfect Complements and Substitutes

  11. An Illustration P DCoke, Prices Equal DCola Q Perfect Complements and Substitutes

  12. An Illustration P Suppose Coke and Pepsi both charge Po and split the market Qo. DCoke, Prices Equal Po DCola Q ½Qo Qo Perfect Complements and Substitutes

  13. An Illustration P A change in the price of Coke alone will cause a sharp change in the quantity of Coke demanded. DCoke, Prices Equal Po DCola Q ½Qo Qo Perfect Complements and Substitutes

  14. An Illustration P A change in both prices will cause a movement along the Red Cola demand function. DCoke, Prices Equal Po DCola Q ½Qo Qo Perfect Complements and Substitutes

  15. End ©2003 Charles W. Upton Perfect Complements and Substitutes

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