Question

Explain the effect of rise in the prices of related goods on the demand of a good2

Answer 1

There are 2 type of realted goods.

1- Substitute goods - those goods which can be used for each other.ex- tea and coffee ,.

If price of tea increases , People with tight budget will buy coffee , hence price of coffee increases when price of tea is increased .

2 - Complementary goods-

Those goods which can't be used without each other , example - bike and petrol.

If price of petrol rises , people who want to buy bike will think once again and May not buy it because petrol is expensive,

Hence demand for bike will decrease when price of petrol is increased.