Explain the effect of change in price of related good on its demand fo...
Related goods can be two types:1 compliment goods ; These r those goods which is used together e,g car nd petrol 2 substitute goods; These r goods which r used in place of other goods e,g tea,coffee
Incase of compliment goods Ya Whereas Incase of substitute goods
1. prise of goods 1 is directly proportional too demands of goods 2 2. If there is an increase in the prise of tea, quantity demanded for coffee wll also increase
Explain the effect of change in price of related good on its demand fo...
Effect of Change in Price of Related Good on Demand
When the price of a related good changes, it can have a significant effect on the demand for a particular good. There are two types of related goods to consider: substitutes and complements.
Substitute Goods
- When the price of a substitute good decreases, the demand for the original good will likely decrease. This is because consumers will switch to the cheaper substitute, reducing the demand for the original good.
- Conversely, when the price of a substitute good increases, the demand for the original good will likely increase. Consumers will opt for the cheaper option, leading to an increase in demand for the original good.
Complementary Goods
- For complementary goods, the relationship is opposite. When the price of a complementary good decreases, the demand for the original good will likely increase. This is because consumers are more likely to purchase both goods together, resulting in an increase in demand.
- On the other hand, if the price of a complementary good increases, the demand for the original good will likely decrease. Consumers may be less inclined to purchase both goods together, leading to a decrease in demand for the original good.
Diagram
A diagram illustrating the effect of a change in the price of related goods on demand would show the shift in the demand curve. For substitute goods, a decrease in the price of a substitute would shift the demand curve to the left, indicating a decrease in demand. An increase in the price of a substitute would shift the demand curve to the right, showing an increase in demand. For complementary goods, a decrease in the price of a complementary good would shift the demand curve to the right, indicating an increase in demand. An increase in the price of a complementary good would shift the demand curve to the left, showing a decrease in demand.
In conclusion, the price of related goods plays a crucial role in determining the demand for a particular good, as consumers' choices are influenced by the prices of substitutes and complements.
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