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

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Related goods are of two type: Substitute goods and Complementary goods.

(i) In case of substitute goods: Increase in the price of one good results in increase in the demand of its substitute good Similarly Tea and Coffee. When the price of tea increases/ then the consumers will starts consuming more of coffee in place of tea, as a result, demand of coffee increases.

(ii) In case of complementary goods: When price of one commodity increases demand for its complementary good falls. For example: increase in price of petrol will decrease the demand for car.

Following diagram shows this:

Related goods are of two type: Substitute goods and Complementary goods.  (i) In case of substitute goods: Increase in the price of one good results in increase in the demand of its substitute good Similarly Tea and Coffee. When the price of tea increases/ then the consumers will starts consuming more of coffee in place of tea, as a result, demand of coffee increases.  (ii) In case of complementary goods: When price of one commodity increases demand for its complementary good falls. For example: increase in price of petrol will decrease the demand for car.  Following diagram shows this:

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