posted by Econ Gal on .
2. Compare the following two pairs of goods:
Coke and Pepsi
Skis and ski bindings
In which case will the cosnumer respond more to a change in the relative price of the two goods?
I think that it would the skis and ski bindings since they are complements. Is this accurate.:)
I'm not an expert -- but I agree with you. Coke and Pepsi products have strong customer loyalty -- so minor differences in price would probably not affect most customers.
In general, skis and bindings are priced according to their usefulness -- so skiers adjust their needs according to the price and the value.
Good anlysis Ms Sue, but I would disagree, especially if the student is asking a question from a basic microeconomics course.
The student is asking a typical microeconomic question used to get students to think about the cross-price elasticities of demand for different kinds of commodities. Coke and Pepsi, I would argue, are very close substitutes. (I personally do not have a strong preference of one over the other. But, it could be just me.). Skis and ski bindings, on the otherhand are close compliments. A person hardly ever buys skis and not ski bindings, or buys ski bindings and not skis.
So, Econ Gal, if the price of Coke suddenly went up, say, 10%, while the price of Pepsi did not change, what would people do? Obviously they would buy LESS Coke and probably MORE Pepsi. Would the quantity of Coke drop by more than 10%? would the quantity of Pepsi increase by more than 10%?.
Now then, say the price of skis rose by 10% and the price of ski bindings remained the same. People would buy LESS skis and LESS ski bindings. Would the change in quantity be more or less than 10%?
I hope this helps.