Question

Show and describe what would happen to the market demand curve for a good in each of the following cases: 1. a decrease in the price of a substitute 2. an increase in the price of a complement 3. an increase in the number of buyers 4. an increase in income, for a normal good 5. an increase in income, for an inferior good

Answer 1

1) Substitute goods are those goods which can be used in place of one another .  Let us take the case of substitutes (tea and coffee). Say our good in consideration is tea. Price of coffee decreases . This would lead to an decrease  in demand for tea as people would shift from tea to coffee as coffe  has become relatively cheaper. Hence demand curve for tea would shift leftwards .
2) Complementary goods are goods which are used toghther to satisfy the particular demand . Rise in price of complementary goods In case of such goods, increase in the price of one causes decrease in the demand of other, e.g. car and petrol. If the price of petrol rises, consumer’s demand for cars will fall. Hence demand for cars will shift leftwards .

3) This is very clear that if the number of buyer will rise , then demand for that product increases as there are more people to buy the products now as compare to past . Hence this will shift the demand curve rightwards .

4)  An increase in income causes demand for normal goods to increase and hence demand curve would shift to right as consumer will demand more for that normal good at same prices now. Hence this will shift the demand curve rightwards .

5) Inferior goods are low quality products . Rise in income in case of inferior goods When income of the consumer increases, he will decrease the consumption of inferior goods, e.g. a person decreases the consumption of dalda refined when his income increases.