Change in Expectationsabout Future PricesConsumers decide which products to buyand when to buy them.Price.Futureproducts are substitutes forcurrent productsD0Anexpectedincreaseintheprice0Quantitytomorrow increases demand todayEffectontoday'sgasolineAnexpected decreaseinthepricedemand,ifpricewillrisetomorrowtomorrow decreases demand todayExample:If you found out the price of gasoline wouldgo up tomorrow, you would increase yourdemand today.16@2015Pearson Education,Inc
© 2015 Pearson Education, Inc. 16 Change in Expectations about Future Prices Consumers decide which products to buy and when to buy them. • Future products are substitutes for current products • An expected increase in the price tomorrow increases demand today. • An expected decrease in the price tomorrow decreases demand today. Example: If you found out the price of gasoline would go up tomorrow, you would increase your demand today. Effect on today’s gasoline demand, if price will rise tomorrow
MakingApple'sPolicyonProductSpeculationtheConnectionApple strongly discourages its employees from speculating aboutwhena new modelwill appear.Why?Suppose a customer learns that a new iPad model will be availablenext month.The new modelis a potential substitute for the current model.. The price of the current model will likely fall next month.Botheffectsdecreasecurrentdemand (badforApple!)@2015Pearson Education,Inc.17
© 2015 Pearson Education, Inc. 17 Making the Connection Apple’s Policy on Product Speculation Apple strongly discourages its employees from speculating about when a new model will appear. Why? Suppose a customer learns that a new iPad model will be available next month. • The new model is a potential substitute for the current model. • The price of the current model will likely fall next month. • Both effects decrease current demand (bad for Apple!)