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prices of related goods

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Rebekah Drozd

on 23 April 2010

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Transcript of prices of related goods

Prices of Related Goods The supply for one good is often connected to the supply for its related goods. The changes in a products price can affect the supply for the product's related goods. A historical example of an increase in supply would be farming. Gary, a farmer, originally planned on planting wheat. The price dropped, and then the price of corn was slighty higher. Once he found this out, he deciedes to plant corn instead. The drop in wheat prices resulted in an increase of a related good, which would be corn. The situation would be the exact same if the price of wheat were to rise. The farmers will make a better profit off of wheat, so the curve will go up for wheat. Then corn would decrease & the supply curve would go to the left. A current example of this would be
Netflix vs. Blockbuster! Netflix base plan: $8.99 with a Blu-ray Disc option for an extra $2 per month.
Blockbuster base plan : $8.99 per month for one disc out at time, but they don’t charge extra for Blu-ray discs.
Both options have quick delivery time (between 1 and 2 days) and close to 100,000 titles (some in Blu-ray). Blockbuster has the additional service of allowing in-store returns and exchanges (with restrictions). Netflix and Blockbuster are similiar, but why is netflix destroying blockbuster? Blockbuster has pushed customers away with the inconsistent late fee poicies. Another thing that does not look good for Blockbuster is the perception that they are going out of business. Netflix has been doing lots of advertisement which is an important factor for growing a business. Sometimes those adds are really annoying but at least you remember Netflix.
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