Question

When the demand for goods fall due to an unfavourable change in consumer performs what is the change in demand called?

Answer 1

Answer:

i) Price of the Commodity:

A rise in the price of a commodity reduces its demand and a reduction in its price increases the demand. Thus, demand is more at a lower price and less at a higher price.

(ii) Income of the Consumer:

In case of normal goods, demand increases with rise in the income of the consumer and falls when the income decreases. There are however certain goods whose demand falls with the rise in income of the consumer; such goods are known as “inferior” (less expensive) goods.

iii) Price of Related goods:

Related goods are of two types:

(i) Substitute goods and

(ii) Complementary goods.

(a) Substitute Goods:

Goods which can be used in place of each other are called substitute goods, for example tea and coffee. A fall in the price of substitute goods will reduce the demand of the commodity as people will start buying the substitutes whose price has gone down in place of the given commodity. Similarly, in case of increase in the price of substitute goods, the demand for the commodity will increase. Thus the demand of a commodity is directly related to the price of the substitutes.

(b) Complementary Goods:

Goods which are used together to satisfy a given want, are called complementary goods. For example, car and petrol. Demand of a commodity is inversely related to the price of complementary goods. The demand for a commodity will increase if price of its complementary good falls and it will decrease if price of complementary good increases.

For example, increase in the price of petrol will reduce the demand for cars and a reduction in price of petrol will increase the demand for cars.