Change in expected future prices and demand Video Lecture - Economics

- [Instructor] We've been
talking about the law of demand
and how if we hold all else
equal, a change in price,
if price goes up, the
quantity demanded goes down,
and if price goes down, the
quantity demanded goes up.
So if you hold all else
equal, ceteris paribus,
we are just moving along this
curve depending on what price.
But what we started talking
about is what happens
when you change some of those things
that we have been holding equal,
how does that change demand?
In the last video, we
talked about the price
of related goods, price of related goods.
And if the price of related goods change,
both complements and substitutes,
how that might change the,
how that might increase
or decrease demand,
the entire curve, not just
one particular scenario.
Now let's talk about
another one of those factors
that we've been holding constant,
and think about how that
would change demand,
the entire curve, if
we were to change that,
and that's expectations of future prices.
I'll do that in this green.
So expectations, expectations
of future prices,
of future, future prices.
So let's say that, let's
talk about a first scenario
right over here, where,
let's say that this curve,
people didn't expect prices
to change for my ebook.
And now, all of a sudden, people expect,
there's a change in expectation,
now all of a sudden,
they expect the prices
to go up going forward.
So now, now, now expect,
expect the future price,
the future price to go up.
What's going to happen?
If you expect the future price to go up,
and the good or the product
in question is something
that you can store, well, and depending on
how much you expect it to go up,
you're probably more likely to buy it now,
buy it before the price goes up.
So regardless of what point
on this curve we're at,
regardless of the price point,
at any one of those
price points, people now,
because they want to, instead
of buying it later they want
to buy it now, they are more,
the current demand will go up
at any of these price points.
So at $2, more people will want to buy it
'cause they think it's gonna go up.
At $4, more people will want to buy it
'cause they think it's gonna go up.
At any of these price points,
because now there's an,
the expectations have
gone from being neutral
to now expecting prices to go up,
it will shift the entire
curve to the right.
So this will shift the
entire curve to the right.
So this right over here is scenario one.
And it depends how much
this changes to say
how much this shifts to the right.
This is just a general
idea, this is scenario one.
And the shifting of the entire curve,
you could say they increased demand.
So this is literally demand increasing,
demand, demand increased.
And when we talk about demand, remember,
and you're probably
tired of me saying this,
I'm not talking about
a particular quantity.
I'm talking about the entire
curve shifting to the right
because people expect
future prices to go up,
so the current demand went up,
the current demand curve
shifted to the right.
And now we can just take
the other side of that.
Imagine what happens in scenario two.
Before people were neutral,
that was our curve right there.
They didn't have any opinion about
whether future prices
were gonna go up or down,
or maybe they just assumed
they were gonna stay the same.
And now they expect
future prices to go down.
Now expect future prices,
future prices, to go down.
And this is something that happens
in consumer electronics
all the time, you see,
whenever you buy a laptop or
any type of electronic device,
we now assume that the
prices will go down.
Now what we're talking about
is a change in expectations.
So you're going from neutrality,
or let's say you're going from,
you expect them to go down,
but now you expect them
to go down even faster.
And if all of a sudden
you expect them to go down
even faster, you're even
less likely to buy them now.
So if you expect, if before
you thought prices were going
to be roughly constant, and
now you expect them to go down,
now you're gonna say, well,
hey, at any given price point,
why don't I just hold off a little bit
and wait a little bit?
So it's going to lower demand.
So in this scenario, the whole
curve will shift to the left.
At any given price point, the
quantity demanded will go down
at any point in that curve.
And so, the entire demand curve
will be shifted to the left.
So because of scenario two, demand,
demand was decreased,
demand was decreased.