Question

A and B are substitute goods and are priced the same. A complementary good of A increases in price while the price of the same complentary good for B remains the same. According to the law of demand, with everything else being equal, what will happen to the demand of A

Answer 1

Answer:

The demand for A will decrease

Explanation:

If A and B are substitute goods it means either A and B can be used in the place of the other as they satisfy same needs. Two goods are said to be complementary goods if the use of 1 of the goods requires the use of the other. For example if good A was a car, it's complementary good will be petrol.

Since A and B can be substituted for each other, if the price of a Complementary good for A increases, the demand for A will decrease because the law of demand says that higher prices causes decrease in demand. People will rather buy good B whose complement remains the same in price since it is cheaper.

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