Question

Explain the effects of rise in the price of related goods on thew demand of goods

Answer 1

Related goods are of two types : i) supplementary

                                                      ii) complementary

• Supplementary goods  : are those goods which are used as substitudes for a particular good.

       Example ; tea and coffee are supplementary goods.

There exist a direct relation relation between price and supplementary goods .

For example , if price of both , tea and coffee , is 10 rs . Suppose  price of tea increases to 12 rs and price of coffee remains the same , consumers will stop buying tea and start purchasing coffee . Thus demand for coffee increases.

• Complementary goods : are those goods which are used together to satisfy a particular want.

       Example ; car and petrol are complementary goods.

There exist an indirect relation between price and complementary goods

For example , if price of car increases , consumer will stop buying car . Thus , the demand for petrol will decrease .

in supplementary goods , if price of a good increases , demand for other good also increases  and vice versa

in complementary goods , if price a good increases , demand for other good will decreases and vice versa