Perfect Complements and Substitutes Lectures in MicroeconomicsCharles W

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

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

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

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

Perfect Substitutes P PPepsi D Q Perfect Complements and Substitutes

Demand Shifters P D’ D Q Perfect Complements and Substitutes

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

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

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

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

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

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

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

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