ECON 201 SEU Are Goods Substitutes or Compliments for Cigarettes Case Study

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Your expectations about the fuhire may affect your demand for
a good or service today. If you expect to eam a higher income next month, you
may choose to save less now and spend more of your current income buying ice
cream. If you expect the price of ice cream to fall tomorrow, you may be less willing to buy an ice-cream cone at today’s price.
Expectations
Number of Buyers In addition to the preceding factors, which influence the
behavior of individual buyers, market demand depends on the number of these
buyers. If Peter were to join Catherine and Nicholas as another consumer of ice
cream, the quantity demanded in the market would be higher at every price, and
market demand would increase.
The demand curve shows what happens to the quantity demanded of
that in uence
curve shifts. Table
1 lists the variables
that in uence how much consumers choose to buy of a good.
If you have trouble remembering whether you need to shift or move along the
demand curve, it helps to recall a lesson from the appendix to Chapter 2. A curve
shifts when there is a change in a relevant variable that is not measured on either
axis. Because the price is on the vertical axis, a change in price represents a movement along the demand curve. By contrast, income, the prices of related goods,
tastes, expectations, and the number of buyers are not measured on either axis, so
a change in one of these variables shifts the demand curve.
Summary
Two Ways to Reduce the Quantity
g
of Smoking Demanded
g
Public policymakers often want to reduce the amount that people smoke because
of smoking’s adverse health effects. There are two ways that policy can attempt
to achieve this goal.
Oneway to reduce smoking is to shift the demand curve forcigarettes and other
tobacco products. Public service announcements, mandatory health warnings on
cigarette packages, and the prohibition of cigarette advertising on television are
all policies aimed at reducing the quantity of cigarettes demanded at any given
price. 1f successful, these policies shift the demand curve for cigarettes to the left,
as in panel (a) of Figure 4.
Price of the good itself
Represents
‘ncome
Shms the demand curve
:01
t
.
Shifts the demand curve
Tastes
Shifts the demand curve
Expectations
Shifts the demand curve
Number of buyers
Shifts the demand curve
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variables Th3‘ Influeinu Buyers
Thls table Ilsts the varlables that
affect how much consumers choose
to buy of any good. Notice the
specia| r°|e that the price of the
good plays: A change in the good’s
price represents a movement
along the demand curve, whereas
a change in one ofthe other
variables shifts the demand curve.
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a movement along the demand curve
Prices of related goods
’fi’
5
. . .
fl
A Change in This Variable
t
Table 1
fl
Variable
.
awe».
fi
a good when its price varies, holding constant all the other variables
buyers. When one of these other variables changes, the demand
.t
‘
l
4
Shifts i” the Demand
curve versus Movemen“
a|°ng the Demand curve
If warnings on cigarette packages convince smokers to smoke less, the demand curve
for cigarettes shifts to the left. In panel (a), the demand curve shifts from D, to D2. At
a price of $2.00 per pack, the quantity demanded falls from 20 to 10 cigarettes per
day, as re ected by the shift from point A to point B. By contrast, if a tax raises the
price of cigarettes, the demand curve does not shift. Instead, we observe a movement
to a different point on the demand curve. ln panel (b), when the price rises from $2.00
to $4.00, the quantity demanded falls from 20 to 12 cigarettes per day, as re ected by
the movement from point A to point C.
fi
Figure
(a) A Shift in the Demand Curve
Price
of
A P°ii
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macroeconomic

cigarettes

Goods Substitutes

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