What will happen for demand for commodity of the price of its substitution goods falls

Health

1 answer:

Afina-wow [57]3 years ago

5 0

Effect of demand for commodity on substitution of goods is given below.

Explanation:

When the price of a good decreases, then the quantity demanded of one increases and the demand for the other increases. When the price of a substitute good decreases, the quantity demanded for that good increases, but the demand for the good that it is being substituted for decreases.

A change (increase or decrease) in the price of substitutes directly affects the demand for a given commodity. (ii) Decrease in Price of Substitute Goods: With decrease in price of substitute goods (coffee), demand for the given commodity (tea) also decreases from OQ to OQ1 at the same price of OP.

The substitution effect refers to the change in demand for a good as a result of a change in the relative price of the good compared to that of other substitute goods. For example, when the price of a good rises, it becomes more expensive relative to other goods in the market.

A change in the price of a substitute-in-consumption causes a change in demand and a shift of the demand curve. An increase in the price of one substitute good causes an increase in demand for the other. A decrease in the price of one substitute good causes a decrease in demand for the other.

The prices of complementary or substitute goods also shift the demand curve. When the price of a good that complements a good decreases, then the quantity demanded of one increases and the demand for the other increases.

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