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Question
What do you mean by complements? Give examples of two goods which are complements of each other.
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Solution
Those goods that are consumed together are called complementary goods. Example: Tea and sugar. If the price of sugar increases, then it will lead to a decrease in the demand for tea. If the price of tea increases, then it will reduce the demand for sugar.
The demand for a good moves in the opposite direction of the price of its complementary goods. That is,
If the price of tea (PT) increases, then the demand for sugar (DS) decreases.
If the price of sugar (PS) increases, then the demand for tea (DT) decreases.
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| 1. Increase or decrease in demand for a commodity does not cause any change in its price. | (a) Effect on supply, in the case of Perfectly Elastic Demand. |
| 2. Increase or decrease in demand causes a change in the price of the commodity. Equilibrium quantity remains constant. | (b) Effect on demand, in the case of Perfectly Inelastic Supply. |
| 3. Increase or decrease in demand cause a change in the price of the commodity. Equilibrium quantity remains constant. | (c) Effect on demand, in the case of Perfectly Elastic Supply. |
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mention any two examples of composite demand.
