Question

Explain the effect of following on the demand for a good:

(a) Fall in price of substitute good.

(b) Rise in income of the consumer in case of inferior good.​

Answer 1

Answer:

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Explanation:

• Demand for a given commodity varies directly with the price of a substitute good. For example if price of a substitute good (say coffee) increases, then demand for given commodity (say tea) will rise as tea will become relatively cheaper in comparison to coffee.

• In the case of inferior goods income and demand are inversely related, which means that an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand. For example, necessities like bread and rice are often inferior goods.

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