A consumer consumes goods x. explain the effects of fall in prices of related gods on the demand for x. use diagram showing demand for good x on the x axis and its price on the y axis.
Change in Price of Related Goods: The related goods can be classified into following two categories.
i. Substitute Goods- Substitute goods refer to those goods that can be consumed in place of each other. For example, tea and coffee. In case
there is a fall in the price of the substitute goods, then the demand for the other good will also fall. And in this case, the demand curve for the other good (tea) will shift parallely towards left.
In the above diagram, as a result of fall in price of coffee, the demand for tea falls and the demand curve for tea shifts from D1D1 to D2 D2.
ii. Complementary Goods - Complementary goods refer to those goods that are consumed together. The joint consumption of these goods satisfies wants of the consumer. For example: ink and ink pens.In case, there is a fall in the price of the complementary good, then the demand for the other good will rise. And in this case, the demand curve for the other good (ink) will shift parallely towards right.
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In the above diagram, as a result of a decrease in price of ink pens, the demand for ink rises and the demand curve for ink shifts from D1D1 to D2 D2