Question

How is the demand of a commodity affected by changes in the price of related goods? Explain with the help of diagrams.

Answer 1

1. Substitute Goods: Substitute goods are those goods which can be used in place of each other, such as tea and coffee.

• When the price of coffee rises, the demand for tea increases.
• When the price of coffee falls, the demand for tea decreases.

Thus, there is a direct relationship between the price of a substitute good and the demand for the given commodity.

2. Complementary Goods: Complementary goods are those goods which are used together, such as tea and sugar.

• When the price of sugar rises, the demand for tea decreases.
• When the price of sugar falls, the demand for tea increases.

Thus, there is an inverse relationship between the price of a complementary good and the demand for the given commodity.