Question

State whether the following statement is true or false. Give reasons for your answer :
X and Y are complementary goods. A fall in the price of Y will result in a rise in the price of X.

विकल्प

• True

• False

Answer 1

X and Y are complementary goods. A fall in the price of Y will result in a rise in the price of X.
False, if X and Y are complementary goods, then a fall in the price of good Y will lead to a rise in the demand of good X.

Explanation:
Graphically, the effect of this change can be seen as follows:

Here, Suppose D₁D₁ and S₁S₁ are the initial market demand curve and market supply curve, respectively. The initial equilibrium is established at point E₁, where the market demand curve and the market supply curve intersect each other. Accordingly, the equilibrium price is OP₁ and the equilibrium quantity demanded is Oq₁.

Now, as the market demand of good X increases, this shifts the market demand curve parallely rightwards to D₂D₂ from D₁D₁, while the market supply curve remains unchanged at S₁S_1. This implies that at the initial price OP₁, there exists excess demand equivalent to (Oq'₁ – Oq₁) units. This excess demand will increase competition among the buyers and they will now be ready to pay a higher price to acquire more units of good. This will further raise the market price. The rise in the price will continue till it the market price becomes OP₂. The new equilibrium is established at point E₂, where the new demand curve D₂D₂ intersects the supply curve S₁S₁. Observe that at the new equilibrium both market price and quantity demanded are more than the initial equilibrium. The new equilibrium quantity supplied Oq₂ and the new equilibrium price is OP₂. Hence, an increase in demand with supply remaining constant results in a rise in the equilibrium price as well as the equilibrium quantity.