1 00:00:00,518 --> 00:00:01,712 I sensed some confusion 2 00:00:01,712 --> 00:00:04,728 coming out of the last video on inferior goods. 3 00:00:04,728 --> 00:00:05,467 So, I thought I would do another one. 4 00:00:05,467 --> 00:00:07,468 So let's make -- 5 00:00:07,468 --> 00:00:09,468 Let's assume that there [are] three cars in the market. 6 00:00:09,468 --> 00:00:10,520 And what I want to do is -- 7 00:00:10,520 --> 00:00:12,527 I sensed that some people thought I was suggesting 8 00:00:12,527 --> 00:00:14,982 that a car, in general, is an inferior good. 9 00:00:14,982 --> 00:00:16,786 And that's not what I was saying. I was saying 10 00:00:16,804 --> 00:00:18,975 if we lived in a reality where everyone owned a car -- 11 00:00:18,975 --> 00:00:21,354 your car was a necessity for life -- 12 00:00:21,354 --> 00:00:23,953 and that is true in much of the developed world -- 13 00:00:23,953 --> 00:00:26,500 I was saying that the cheapest car on the market 14 00:00:26,500 --> 00:00:29,276 might be considered an inferior good. 15 00:00:29,276 --> 00:00:30,415 And to think about that, 16 00:00:30,415 --> 00:00:32,266 let's just think about the entire population. 17 00:00:32,266 --> 00:00:34,742 So let's say that this line -- this line represents 18 00:00:34,742 --> 00:00:36,771 the entire population in our place -- 19 00:00:36,771 --> 00:00:38,451 in our developed country 20 00:00:38,451 --> 00:00:40,208 where everyone owns a car. 21 00:00:40,208 --> 00:00:44,365 And let's say -- let's represent this car with blue. 22 00:00:44,365 --> 00:00:49,452 So, let's say a third of the people right now have that car. 23 00:00:49,452 --> 00:00:52,415 And now, let's say a good chunk of the people 24 00:00:52,415 --> 00:00:54,453 have this mid-sized sedan. 25 00:00:54,453 --> 00:00:55,714 This is probably the car 26 00:00:55,714 --> 00:00:58,501 that most people would like to have. 27 00:00:58,501 --> 00:01:00,379 It's a little bit safer. It's a little bit larger. 28 00:01:00,379 --> 00:01:01,970 It [has] a more powerful engine. 29 00:01:01,970 --> 00:01:06,826 And so, this is where most people are sitting. 30 00:01:06,826 --> 00:01:08,009 And then you have this ultra -- 31 00:01:08,009 --> 00:01:13,353 this kind of luxury car -- a Rolls Royce, maybe. 32 00:01:13,353 --> 00:01:16,236 And so, that [is] a very small segment. 33 00:01:16,236 --> 00:01:18,885 So, this end of the line is the poor -- 34 00:01:18,885 --> 00:01:22,700 So, this is the poor in our population. 35 00:01:22,700 --> 00:01:25,519 And this is the rich, right over here. 36 00:01:25,519 --> 00:01:27,569 So this is at some given income level. 37 00:01:27,569 --> 00:01:30,304 And maybe we could say 38 00:01:30,304 --> 00:01:32,224 this is true at a particular price point. 39 00:01:32,224 --> 00:01:33,959 But we'll see -- what we're going to talk about 40 00:01:33,959 --> 00:01:35,511 is the general impact on demand -- 41 00:01:35,511 --> 00:01:38,314 on the entire curve at any given price point -- 42 00:01:38,314 --> 00:01:41,182 always assuming that this is the most expensive, 43 00:01:41,182 --> 00:01:43,886 this is in between, and this is the least expensive. 44 00:01:43,886 --> 00:01:47,053 Now, what happens if income goes up from here? 45 00:01:47,053 --> 00:01:50,570 WRITING: Income goes up. 46 00:01:50,570 --> 00:01:52,086 Well, the very poorest, 47 00:01:52,086 --> 00:01:53,982 they're not going to be able to necessarily 48 00:01:53,982 --> 00:01:56,267 just trade up to this mid-size sedan yet. 49 00:01:56,267 --> 00:01:58,400 Although, maybe they'll have more income for other things -- 50 00:01:58,400 --> 00:02:00,072 or they can get a nicer version of this. 51 00:02:00,072 --> 00:02:01,588 But for the most part, 52 00:02:01,588 --> 00:02:03,103 they're still going to be driving this car. 53 00:02:03,103 --> 00:02:06,375 But at kind of the boundary right over here, 54 00:02:06,375 --> 00:02:08,879 if incomes do go up, 55 00:02:08,879 --> 00:02:12,210 there will be people who can now afford the mid-sized car, 56 00:02:12,210 --> 00:02:13,541 And that's what they want. 57 00:02:13,541 --> 00:02:17,285 And so, these people might start buying the mid-size car. 58 00:02:17,285 --> 00:02:19,564 And then what will happen, over here? 59 00:02:19,564 --> 00:02:22,044 Well, maybe there [are] a few people 60 00:02:22,044 --> 00:02:23,359 at the boundary over here -- 61 00:02:23,359 --> 00:02:24,674 they now have the money to afford this very expensive car. 62 00:02:24,674 --> 00:02:26,283 And it suits their taste. 63 00:02:26,283 --> 00:02:30,653 And so they also -- a very small proportion also grows there. 64 00:02:30,653 --> 00:02:32,302 So what happened here? 65 00:02:32,302 --> 00:02:41,803 When income went up, the quantity demanded 66 00:02:41,803 --> 00:02:46,795 at a particular price point for this smallest car, went down. 67 00:02:46,795 --> 00:02:48,869 But the demand for this mid-size car went up. 68 00:02:48,869 --> 00:02:51,877 It took a much bigger chunk out of this blue 69 00:02:51,877 --> 00:02:54,390 than a chunk was taken out of it by the orange. 70 00:02:54,390 --> 00:02:59,670 And also, the demand for this very expensive car went up 71 00:02:59,670 --> 00:03:02,155 And that was at a particular price point. 72 00:03:02,155 --> 00:03:05,256 But assuming this is the most expensive, this is the middle, 73 00:03:05,256 --> 00:03:07,053 and this is the [least] expensive, 74 00:03:07,053 --> 00:03:09,477 this would be true of probably any price point. 75 00:03:09,477 --> 00:03:12,476 And so we have this phenomenon that when income went up -- 76 00:03:12,476 --> 00:03:16,123 the quantity demanded at multiple price points for this car -- 77 00:03:16,123 --> 00:03:18,388 So let me draw its actual demand curve. 78 00:03:18,388 --> 00:03:22,867 So [for] this car right over here, this is price; 79 00:03:22,867 --> 00:03:26,700 this over here is demand. 80 00:03:26,700 --> 00:03:32,821 If its old demand curve looks something like this, 81 00:03:32,821 --> 00:03:34,825 we're saying that maybe when we thought about this, 82 00:03:34,825 --> 00:03:36,191 at first, we're thinking of -- 83 00:03:36,191 --> 00:03:38,879 we were thinking the price point right over here, 84 00:03:38,879 --> 00:03:40,782 we notice when income went up, 85 00:03:40,782 --> 00:03:42,551 at that particular price point, 86 00:03:42,551 --> 00:03:44,258 the quantity demanded went down -- 87 00:03:44,258 --> 00:03:46,325 and that would be true at pretty much any price point -- 88 00:03:46,325 --> 00:03:49,392 assuming that this is always the cheapest car. 89 00:03:49,392 --> 00:03:50,856 So at any price point, 90 00:03:50,856 --> 00:03:53,123 you would have a decrease in demand. 91 00:03:53,123 --> 00:03:53,623 Now, remember. 92 00:03:53,623 --> 00:03:55,020 When we talk about a decrease in demand, 93 00:03:55,020 --> 00:03:57,107 we are talking about a shift of the entire curve. 94 00:03:57,107 --> 00:04:00,424 We're not talking about just one particular quantity. 95 00:04:00,424 --> 00:04:02,057 Now, there was another interesting question 96 00:04:02,057 --> 00:04:02,893 that was asked. 97 00:04:02,893 --> 00:04:07,591 And it's a very nice and subtle thing to think about. 98 00:04:07,591 --> 00:04:10,207 I keep drawing these shifting demand curves, 99 00:04:10,207 --> 00:04:14,407 And if, at least, I understand the question properly, 100 00:04:14,407 --> 00:04:16,940 the question is does the curve, when it shifts, 101 00:04:16,940 --> 00:04:18,481 does it necessary shift perfectly? 102 00:04:18,481 --> 00:04:20,577 Or does, sometimes, it change? 103 00:04:20,577 --> 00:04:22,165 Does it shift more at one price point or another? 104 00:04:22,165 --> 00:04:25,236 And the simple answer is it can. 105 00:04:25,236 --> 00:04:27,459 In fact, in very few circumstances 106 00:04:27,459 --> 00:04:29,213 would it probably be a perfect shift. 107 00:04:29,213 --> 00:04:30,701 Depending on the price point you're at, 108 00:04:30,701 --> 00:04:33,080 it would probably shift a little bit different[ly]. 109 00:04:33,080 --> 00:04:36,606 So, the actual shape of the curve might change 110 00:04:36,606 --> 00:04:37,818 while it's shifting. 111 00:04:37,818 --> 00:04:39,339 But anyway, going back to this. 112 00:04:39,339 --> 00:04:41,771 So, we see that this cheap car, right here, 113 00:04:41,771 --> 00:04:44,664 had the unusual property that when the incomes went up, 114 00:04:44,664 --> 00:04:47,059 the demand curve shifted to the left. 115 00:04:47,059 --> 00:04:51,609 And that's why we call this an inferior good. 116 00:04:51,609 --> 00:04:56,187 These other two cars, when -- 117 00:04:56,187 --> 00:04:59,381 WRITING: So, that's price. And this is demand. 118 00:04:59,381 --> 00:05:01,988 These other two cars, when income went up -- 119 00:05:01,988 --> 00:05:06,576 So, this is the demand curve at first. 120 00:05:06,576 --> 00:05:09,376 When income went up, demand went up. 121 00:05:09,376 --> 00:05:12,514 The whole curve got shifted to the right. 122 00:05:12,514 --> 00:05:14,814 So, they are normal -- 123 00:05:14,814 --> 00:05:17,635 So, this -- these are normal goods.