Question

Explain with examples the effects of the following changes on the demand for a commodity 1. Fall in the price of substitute good 2. Fall in the price of complementary good

Answer 1

Answer:

1). Substitutes are goods where you can consume one in place of the other. The prices of complementary or substitute goods also shift the demand curve. ... When the price of a substitute good decreases, the quantity demanded for that good increases, but the demand for the good that it is being substituted for decreases.

example:

Butter and margarine are classic examples of substitute goods.” If someone doesn't have access to a car they can travel by bus or bicycle. Buses or bicycles, therefore, are substitute goods for cars.

2). When the price of a good that complements a good decreases, then the quantity demanded of one increases and the demand for the other increases. When the price of a substitute good decreases, the quantity demanded for that good increases, but the demand for the good that it is being substituted for decreases.

example:

For example, cereal and milk, or a DVD and a DVD player. On occasion, the complementary good is absolutely necessary, as is the case with petrol and a car.

Explanation:

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