Question

Discuss how prices of related goods affect the demand for a commodity.

Answer 1

There are two types of related goods that affect the demand for a commodity assuming that the price for the commodity remains constant. These two goods are:

1. Complementary goods- These goods are the paired goods which are consumed together and if it is consumed separately then its utility is decreased. So if the demand for one of the two goods is increased, the demand for the other commodity will also increase even if the price of this commodity remains the same and vice versa. Example: Ink and pen, car and petrol etc.

2. Substitute goods- These goods are the opposite goods which are substitutes of each other. So if the demand for one of the two goods is increased, the demand for the other commodity will decrease even if the price of this commodity remains the same and vice versa. Example: coffee and tea, soft drink and fruit juice etc.