What happens to the demand for a substitute good of a commodity when the price of the commodity falls/rises?
Answers
When the price of any commodity rises,the consumer demand for its substitute good increases and if the commodity price falls,the consumer demand for its substitute good decreases.
Explanation:
In simple terms,if the price of any commodity increases or rises,it essentially becomes expensive to the consumers or buyers and based on law of demand,its quantity demanded would decrease.In this case,the consumers or buyers will shift to other substitute products thereby increasing its consumer demand in the market,assuming the price of the substitute good as constant or fixed.Example of substitute goods can be coffee and tea or plain/regular tea and green/herbal tea,coke and pepsi.
On the other hand,when the price of the commodity decreases or falls,it becomes cheaper to the consumers or buyers and its quantity demanded by the consumers or buyers increases in the market.In this case,those consumers who preferred to buy substitute products previously would shift to the concerned commodity due to lower price and consequently,the consumer demand for the substitute product would fall.Again,we assume that the price of substitute good as constant or fixed in this case.