Only starting five minutes late today. Low class attendance.Recapping and trying to figure out where we left off, as usual for start of class.
Starting again with the prices of related goods.
Related goods refers to multiple goods with some link between them. Three possible relationships between goods:
- No relationship. Goods don’t affect each other, and can be considered not members of the “related goods” category.
- Substitute goods. This refers to goods which serve the same basic function, and are equally desirable. Therefore, consumers will tend to choose one or the other based on price, convenience, etc. As the price of one good increases, demand will rise for the substitute good, even though the price of the substitute good is unchanged.
- Complementary goods. This refers to goods whose uses are linked. Sewing needles and thread, bread and butter, etc. If demand rises for a good, for any reason, demand for its complementary goods will also rise. If the price of sewing thread falls, and demand for thread rises, demand for needles will also rise, because needles are needed to utilize the thread.
Change in quantity demanded is not the same as change in demand. Changes in quantity demanded means shifting position on the same demand curve. A change in demand actually shifts the position of the demand curve. Typically, changes in price affect the quantity demanded. Changes in other determinants tend to change demand.
Consumers consume goods because those goods satisfy needs. In other words, the good or service has utility.
Cardinal utility is utility expressed in numbers or monetary value. Cardinal utility is the quantifiable value of a good or service. First suggested by Marshall.
Hicks and Slasky, doing independent research, suggested Ordinal Utility as a different means of analyzing utility. Ordinal utility is a relative ranking of utility between options; one good would be ranked first, the next best good ranked second, and so forth. See the Indifference Curve.