Question

How is the demand for a good affected by a rise in the prices of other goods? Explain.

Answer 1

Other or related goods may be

(i) Substitute goods,

(ii) Complementary goods

Substitute goods are those goods which can be substituted for each other. Let us consider X and Y as substitute goods, like tea and coffee. If price of good Y rises, the consumers will shift from good Y to good X because X is now relatively cheaper.

Complementary goods are those goods which complement each other. For instance, sugar and coffee are complementary. Let us consider X and Y as complementary goods. If price of good Y increases, the consumers will buy less of X along with less of Y.