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Question
How does change in the price of a substitute good affect the demand of the given good? Explain with the help of an example.
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Solution
Substitute goods are goods which can be purchased in place of each other. The demand for
a commodity is in relation to the price of its substitute good. Assume tea and coffee as two
substitute goods. D1 is the demand curve for the demand for tea in the diagram.
When the price of tea is OP1, the quantity demanded is OT1 as shown in Fig (a). If there is an
increase in the price of the substitute good coffee, then the demand curve for tea shifts to
the right. Now, the consumer is willing to buy the P1C2 quantity of tea which is equal to OT2.
Greater the purchase of a commodity at its constant price points to a situation of increase
or forward shift in the demand curve. The consumer demand curve shifts from D1 to D2,
consuming more of tea even when its price is constant.
RELATED QUESTIONS
State and explain the ‘law of demand’ with its exceptions.
When does ‘increase’ in demand take place?
Explain the effect of change in prices of the related goods on demand for the given good.
Market of a commodity is in equilibrium. Demand for the commodity "increases." Explain the chain of effects of this change till the market again reaches equilibrium. Use diagram.
If with the rise in the price of good Y, demand for good X rises, the two goods are: (Choose the correct alternative)
a. Substitutes
b. Complements
c. Not related
d. Jointly demanded
State with reason, whether you Agree or Disagree with the following statement.
The demand curve slopes downward from left to right.
Do you agree with the following statement? Give reason
There are no exceptions to the law of demand.
Statements related to decrease in demand
- It is a type of change in demand
- It takes place due to unfavourable changes in other factors like tastes, income etc.
- Price remains constant
- Demand curve shifts to the right hand side of the original demand curve
The demand curve for foreign exchange is ______
Assertion (A): The demand curve is downward sloping.
Reason (R): The income effect means with a fall in the price of a good, the consumer's real income or purchasing power rises and he demands more units of the good.
In case of perfect competition, AR curve is:
Explain why the demand curve slopes downwards.
- Assertion (A): The demand curve slopes downwards.
- Reasoning (R): A fall in the price of goods increases the real income of the consumer enabling him/her to buy more.
Study the following diagram and answer the questions:
Questions:
- In which direction does the demand curve slope?
- What is the reason for the fall in demand of rice from Q0 to Q1?
Figures (A), (B) and (C) given below represent different types of Demand curves.
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 |
 |
| (A) | (B) | (C) |
What kind of goods do each of these Demand curves represent? Give a reason for each of the curves.
Draw a straight-line demand curve joining both the axes. Indicate the following on the demand curve.
Elasticity of demand is equal to zero
What causes movement along the demand curve, not a shift of the curve?
In a demand schedule, what do the X-axis and Y-axis represent when plotting the demand curve?
Why is the demand curve useful for businesses?
