X and Y are complementary goods. Explain the sequence of effects of a fall in the price of X on the equilibrium price and quantity of Y.

Open in App

Solution

In the case of complementary goods, when the price of X falls, the demand for commodity Y increases.

As a result, the demand curve of commodity Y will shift towards the right but supply curve remains unchanged. Due to increase in demand of commodity Y, there will be excess demand. Therefore, the supplier will be motivated to increase the price of commodity Y. The equilibrium price and quantity would tend to increase.

Suggest Corrections

Similar questions

Explain the effects of ‘increase’ in supply of a good on its equilibrium and equilibrium quantity. Use diagram.

Explain the effects of ‘increase’ in supply of a good on its equilibrium price and equilibrium quantity with the help of a schedule.

Explain the effect of a simultaneous decrease in both demand and supply on equilibrium price and quantity.

If the price of a substitute (Y) of good X increases, what impact does it have on the equilibrium price and quantity of good 'X'?

Join BYJU'S Learning Program