Holding prices of all other goods constant, as the Price of hearing aids goes up, Quantity Demanded goes down.
One of the hardest concepts to get across in a principles of economics class are changes in demand versus changes in quantity demanded. This short scene from The Hudsucker Proxy solves that problem in a humorous way.
|Consumer Preference||Tastes change Quantity Demanded. Tiny, “invisible” hearing aids command higher Demand. Digital, “fully automatic” hearing aids are preferred and increase Demand — the Curve shifts up|
Perceived credible sources (FDA, insurance companies) influence Demand in positive or negative ways by releasing information that supports or detracts from hearing aid characteristics (e.g., Price, Performance, Safety). Hearing Aid Manufacturer’s corporate brands (e.g., providing hearing aids to the needy of the world versus insider trading scandals) can also influence consumer information and shift Demand up or down for product.
Another consideration is whether consumers desire information. As my esteemed colleague David Kirkwood succinctly puts it:“the fact is, most people are so reluctant to get the hearing help they need, they will use any excuse not to take the next step toward getting help—including the minimal cost of doing’“research.’”
Demand for so-called “normal goods” shifts downward (is reduced) when people’s incomes decline, as in a recession. Hearing aids dispensed by Audiologists are normal goods — when the economy is good, the Demand Curve shifts up, when the economy is down, the curve shifts down.
But, there is another class of goods that economists call “inferior goods” and that is what our industry is encountering in recent times. Demand for inferior goods goes up when people’s incomes decline (see substitutes, last row of this table).
|Number of Consumers||
The Demand Curve shows the relationship between Price and Quantity demanded by all consumers in the market. Those last three words are tricky — we talk about “the market for hearing aids” as though it includes everyone with hearing loss, but we also acknowledge that upwards of 80% of those with hearing loss are not consumers of hearing aids. They are not in the market. That’s why Dr Kochkin shows two Demand Curves for a single “market” of people with hearing loss. Just because there is a single market of people with hearing loss does not mean that they are all in the market for hearing aids. In the CIC case, Dr. Kochkin is showing that there is a market for CIC wearers, there is a potential market for those who have hearing loss who are considering CIC purchase. Not shown is another market of those with hearing loss who are not even considering hearing aid purchase.
The big idea is to increase the number of consumers who are really in the market. The bigger the number the bigger the demand and the demand curve shifts up. The burgeoning Senior and Boomer populations are a help, as many have pointed out, hopefully.
|Consumer Expectations of Future Prices||Consumers defer purchases if they think Price is going to go down; they purchase immediately if they have reason to expect Price to go up. The hearing aid “market” is replete at present with advertising and marketing campaigns promoting low Price. To the extent that decreasing Price looks like a continuing trend to consumers, they have good reason to wait to purchase, meaning the market is temporarily contracted and the Demand Curve shifts downward.|
|Prices of Similar Goods||
Substitutes are goods in economics that provide many of the same benefits to consumers as another good. If the Price of a substitute falls, it usually means that the Price of the other good will fall as well. The typical example is margarine and butter. Until recently, the hearing aid market had few if any substitutes, so it was butter or nothing. Emergence of PSAPs, mail-order hearing aids, and other options has given consumers any number of substitutes for hearing aids dispensed in the traditional manner. Not surprisingly, we are seeing a lot of price adjustments and price anguish among traditional dispensers as low-cost substitutes continue to emerge. This means the Demand Curve for traditionally fit hearing aids is shifting downward as the market is shrinking.
Complements are goods in economics that are consumed with another good — batteries and hearing aids are complements. If the Price of complements rises, demand for the other good decreases, and vice versa. In our market, we are fortunate that hearing aid batteries are inexpensive and readily available. If they were not, fewer people would be interested in purchasing hearing aids, the market would shrink, and the Demand Curve would shift downward.
- Taken from pages 56 & 57 of Taylor & Weerapana, Principles of Microeconomics (6th Ed, 2010). South-Western Cengage Learning. Mason, Ohio.↵
- “up” and “down” are awkward ways of describing the Demand Curve shift. Some economists describe decrease in the schedule as a “leftward” shift (same as “down”); and increase in the schedule as a “rightward” shift (same as “up”). Up = rightward = increased Demand. Down = leftward = decreased Demand.↵