Friday, February 1, 2008

Substitutes


Read this IHT article on the bird flu in Indonesia. Then think of the 'factors affecting demand' section of our course earlier this year. We've learned that if the price of a substitute of good X decreases then demand for X will decrease. It makes perfect sense.

Now, think of these two questions:

1. Draw a diagram to show the effect on the demand for Pepsi of a decision by the marketing directors of Coca Cola to decrease the price of Coke.

2. Draw a diagram to show the effect on the demand for fish of a decrease in the price of chicken as a result of an outbreak of the bird flu.

Iτ should be clear that it is very important to THINK why the price of the substitute good decreased.

Later on in the course we'll check out a past data question that can be very confusing!

BTW, καλό μήνα παιδιά μου γλυκά!

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