question_answer

Explain with the help of diagram, the effect of following changes on the demand for a commodity. (i) A fall in the price of complementary goods (ii) A rise in the price of substitute goods.

Answer:

            (i) Complementary Goods It refers to those goods, which are used together for satisfaction of wants. e.g., car and petrol, pen and refill, needle and thread, tea and sugar, etc. Effect of Fall in the Price of Complementary Goods The demand for a commodity increases with the fall in the price of complementary goods. If there is a fall in the prices of complementary goods, the demand curve shifts to the right which shows increase in demand at a given price of the commodity itself. The shifting of demand curve for a commodity to the right with fall in the price of complementary good is shown in the diagram given below: Demand for Sugar (units) Diagram Showing Increase in Demand for Complementary Goods (ii) Substitute Goods These are those goods which can be substituted for each other, such as tea and coffee, ball pen and ink pen, etc. Effect of Rise in the Price of Substitute Goods In case of such goods, increase in the price of one causes increase in the demand for the other, e.g. demand curve of tea shifts to right when price of the substitute commodity, i.e. coffee increases. The shifting of demand curve for a commodity to the right with rise in the price of substitute good is shown in the diagram given below:                                                                         Demand of Tea (units) Diagram Showing Effect of Increase in the Price of Substitute Goods