Question

Explain the relationship between Prices of other goods and demand for the given good.

Answer 1

The relationship depends on how the goods are related:

1. Substitutes: Price of a substitute and demand for the given good move in the same direction. For example, a rise in coffee’s price may increase demand for tea.
2. Complements: Price of a complement and demand for the given good move in opposite directions. For example, a rise in sugar’s price may reduce demand for tea.
3. Unrelated goods: A change in their price generally does not affect demand for the given good.