David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

CHAPTER 3 Demand, supply and the market
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The demand curve depicts the relationship between price and quantity demanded holding other things
constant. What are those 'other things'? The other things relevant to demand curves can usually be grouped
under three headings: the price of related goods, the income of consumers (buyers) and consumer tastes
or preferences. We look at each of these in turn.
The price of related goods
In Chapter 2 we discussed the demand for tube travel. A rise in bus fares or petrol prices would increase
the quantity of tube travel demanded at each possible tube price. In everyday language, buses and cars are
substitutes for the tube. Similarly, petrol and cars are complements because you cannot use a car without
also using fuel. A rise in the price of petrol tends to reduce the demand for cars.
How do substitutes and complements relate to the demand for chocolate bars?
A price increase for one
Clearly, other sweets (jelly babies, say) are substitutes for chocolate. An increase in
good raises the demand for
substitutes for this good
the price of other sweets increases the quantity of chocolate demanded at each
but reduces the demand for possible chocolate price, as people substitute away from other sweets towards
complements of the good. chocolate. If people buy chocolate to eat at the cinema, films would be a complement
of bars of chocolate. A rise in the price of cinema tickets would reduce the demand
for chocolate since fewer people would go to the cinema. Nevertheless, it is difficult to think of many goods
that are complements of chocolate. Complementarity is indeed a more specific feature than substitutability
(CD players and CDs, coffee and milk, shoes and shoelaces).
For a normal good, demand
increases when incomes rise.
For an inferior good, demand
falls when incomes rise.
Consumer incomes
The second category of 'other things equal' when we draw a particular demand
curve is consumer income. When incomes rise, the demand for most goods
increases. Typically, consumers buy more of everything. However, there are exceptions.
As their name suggests, most goods are normal goods. Inferior goods are typically cheap but low-quality
goods that people prefer not to buy if they can afford to spend a little more.
Tastes
The third category of things held constant along a particular demand curve is consumer tastes or preferences.
In part, these are shaped by convenience, custom and social attitudes. The fashion for the mini-skirt reduced
the demand for fabric. The emphasis on health and fitness has increased the demand for jogging equipment,
health foods and sports facilities while reducing the demand for cream cakes, butter and cigarettes.
One little piggy went to market
The 1996 BSE crisis led to a collapse in the demand for British beef. We can think of the BSE
crisis as a shock (at least temporarily) on consumers' tastes. Consumers started to switch to
pork and chicken since they were perceived as more secure than beef. With a lower demand curve, given the
supply, the equilibrium price of beef fell. On the other hand, the demand for pork increased. The price of pork
rose sharply between 1995 and 1996. Many farmers switched from rearing cows to pigs. The result was an
increase in the market supply of pork. By 1998 the market was flooded with pork and pig prices collapsed! By
2001 many fewer piggies were being reared for the market.
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