Explain with the help of diagrams, the effect of the following changes on the demand for a commodity () A rise in the price of substitute good.
(1) A rise in the price of complementary good.
Answers
Answer:
Explanation:
i) Substitute Goods- Substitute goods refer to those goods that can he consumed in place of each other. For example, tea and coffee. In case of substitute goods rise in the price of one good increases, the consumer shifts his demand to the other (substitute) good i.e. rise in the price of one good results in the rise in the demand of the other good. In this case, the demand curve shifts parallel outwards to the right.In case, there is a fall in the price of the substitute goods, then the demand for the other good will also fall. And in this case, the demand curve for the other good (tea) will shift towards the left.
ii) Complementary Goods: Complementary goods refer to those goods that are consumed together. The joint consumption of these goods is done to satisfy the wants of the consumer. For example. ink and ink pens. In case of complementary goods, if the price of one good increases then a consumer reduces his demand for the complementary good as well, i.e. a rise in the price of one good results in a fall in demand of the other this case, the demand curve shifts parallel inwards to the left.In case, there is a fall in the price of the complementary good, then the demand for the other good will rise. And in this case, the demand curve for the other good (ink) will shift parallel towards right.
Answer:
substitute goods refer to those goods that can be consumed in place of each other.
example tea and coffee
complementary goods refer to those goods that are consumed to gether.
example ink and inkpen