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If two commodities are complementary, then a rise in the price of one commodity will induce:
- a)A rise in the price of the other commodity
- b)An upward shift of the demand curve
- c)A backward shift in demand for the other commodity
- d)None of the above
Correct answer is option 'C'. Can you explain this answer?
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If two commodities are complementary, then a rise in the price of one ...
If two goods are complements, this means that a rise in the price of one commodity will induce a downward shift in demand for the other commodity.
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If two commodities are complementary, then a rise in the price of one ...
Complementary Commodities:
Complementary commodities refer to goods that are used together or are consumed together. The demand for one commodity is influenced by the demand for the other commodity. For example, bread and butter are complementary goods, as the demand for bread is closely related to the demand for butter.
Effect of a Rise in Price:
When the price of one complementary commodity rises, it has an impact on the demand for the other complementary commodity. The effect can be explained as follows:
1. Substitution Effect:
When the price of one complementary commodity rises, consumers tend to substitute it with other similar goods that can serve the same purpose. This substitution effect leads to a decrease in the demand for the complementary good and an increase in the demand for substitute goods. In the case of bread and butter, for instance, if the price of butter increases, consumers may choose to substitute it with margarine or other spreads, leading to a decrease in the demand for butter.
2. Decrease in Demand:
The rise in the price of one complementary commodity also leads to a decrease in the demand for the other commodity. This decrease occurs because the rise in price reduces the affordability and incentive to purchase the complementary good. In the case of bread and butter, if the price of butter increases, consumers may choose to reduce their consumption of bread as well, as the two goods are often consumed together.
Backward Shift in Demand Curve:
The effect of a rise in the price of one complementary commodity is a backward shift in the demand curve for the other complementary commodity. This means that at any given price, the quantity demanded decreases. The demand curve shifts to the left, indicating a decrease in demand.
Therefore, the correct answer is option 'C': A rise in the price of one commodity will induce a backward shift in demand for the other complementary commodity.
Complementary commodities refer to goods that are used together or are consumed together. The demand for one commodity is influenced by the demand for the other commodity. For example, bread and butter are complementary goods, as the demand for bread is closely related to the demand for butter.
Effect of a Rise in Price:
When the price of one complementary commodity rises, it has an impact on the demand for the other complementary commodity. The effect can be explained as follows:
1. Substitution Effect:
When the price of one complementary commodity rises, consumers tend to substitute it with other similar goods that can serve the same purpose. This substitution effect leads to a decrease in the demand for the complementary good and an increase in the demand for substitute goods. In the case of bread and butter, for instance, if the price of butter increases, consumers may choose to substitute it with margarine or other spreads, leading to a decrease in the demand for butter.
2. Decrease in Demand:
The rise in the price of one complementary commodity also leads to a decrease in the demand for the other commodity. This decrease occurs because the rise in price reduces the affordability and incentive to purchase the complementary good. In the case of bread and butter, if the price of butter increases, consumers may choose to reduce their consumption of bread as well, as the two goods are often consumed together.
Backward Shift in Demand Curve:
The effect of a rise in the price of one complementary commodity is a backward shift in the demand curve for the other complementary commodity. This means that at any given price, the quantity demanded decreases. The demand curve shifts to the left, indicating a decrease in demand.
Therefore, the correct answer is option 'C': A rise in the price of one commodity will induce a backward shift in demand for the other complementary commodity.
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If two commodities are complementary, then a rise in the price of one commodity will induce:a)A rise in the price of the other commodityb)An upward shift of the demand curvec)A backward shift in demand for the other commodityd)None of the aboveCorrect answer is option 'C'. Can you explain this answer?
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