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How and why does a change in price affect the demand for substitutes?
Wiki User
∙ 12y ago
if the price of a good rises, the demand for its substitute good also rises as well as if the price of a good falls, the demand for its substitute good also falls because substitute goods are those alternative goods which are availabe in the the market if a particular commodity fails to satisfy the consumers.
Human being's wants are unlimited and there are only a limited resources to satisfy these wants. Money is supposed to be one of the scarcest resources available. So naturally man tries to make the best us of this resource. That is, he tries to satisfy maximum wants from the money available with him.
A person can satisfy one need by utilizing a number of alternative resources. But being a rational individual, he will only use that alternative that is the most cost effective. That is where he has to spend minimum of the scarce resource called money.
When the price of a product rises, the individual will look at alternatives ( substitutes ) that are cheaper but give him same satisfaction. The moment he finds an alternative, he shifts to the other product abandoning the use of the product whose price has been increased. Hence the price rise decreases the demand for the commodity whose price has been increased and increases the demand for the substitute product.
Wiki User
∙ 12y ago
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Explain how a change in price affects the demand for a product substitutes?
The change in price can affect the demand for that product. If the price increases people will look for cheaper substitutes.
How do substitutes affect demand?
When the price of a product rises, the individual will look at alternatives ( substitutes ) that are cheaper but give him same satisfaction.
How price of related goods affect demand?
Price of related goods fall into two categories: substitutes and complements. Complements are when a price decrease in one good increases the demand of another good. Substitutes are when a price decrease in one good decreases the demand for another good.
How do substitute goods and complementary goods affect demand for another good?
Substitutes and complements is the fact that a change in price of one of the goods has an impact on the demand for the other good. For substitutes, an increase in the price of one of the goods will increase demand for the substitute good. (It's probably not surprising that an increase in the price of Coke would increase the demand for Pepsi as some consumers switch over from Coke to Pepsi.) It's also the case that a decrease in the price of one of the goods will decrease demand for the substitute good.
Price of substitutes and complements vs price of commodities?
Relationship of good price to price of substitutes and complements: 1) Substitutes: as the price of substitutes for a good falls, the price of a good must fall in order to maintain demand. 2) Complements: as the price of complements falls, the price of a good can increase and still maintain the same level of demand.
Explain how a change in price affects the demand for a product substitutes?
The change in price can affect the demand for that product. If the price increases people will look for cheaper substitutes.
How do substitutes affect demand?
When the price of a product rises, the individual will look at alternatives ( substitutes ) that are cheaper but give him same satisfaction.
How price of related goods affect demand?
Price of related goods fall into two categories: substitutes and complements. Complements are when a price decrease in one good increases the demand of another good. Substitutes are when a price decrease in one good decreases the demand for another good.
How do substitute goods and complementary goods affect demand for another good?
Substitutes and complements is the fact that a change in price of one of the goods has an impact on the demand for the other good. For substitutes, an increase in the price of one of the goods will increase demand for the substitute good. (It's probably not surprising that an increase in the price of Coke would increase the demand for Pepsi as some consumers switch over from Coke to Pepsi.) It's also the case that a decrease in the price of one of the goods will decrease demand for the substitute good.
Price of substitutes and complements vs price of commodities?
Relationship of good price to price of substitutes and complements: 1) Substitutes: as the price of substitutes for a good falls, the price of a good must fall in order to maintain demand. 2) Complements: as the price of complements falls, the price of a good can increase and still maintain the same level of demand.
What is the difference between elastic and inelastic?
Elastic goods usually have many substitutes, so changes in price will decrease demand. Inelastic goods, on the other hand, have very few substitutes, so demand isn't generally affected by price change.
What is the difference between inelastic and elastic goods?
Elastic goods usually have many substitutes, so changes in price will decrease demand. Inelastic goods, on the other hand, have very few substitutes, so demand isn't generally affected by price change.
What are the non-price determinants of Demand?
Income, Substitutes, complementary goods, tastes and preferences are some of the non-price determinants of demand.
What is perfect elastic of demand?
A good's demand is considered perfectly inelastic when that good's demand does not change, no matter the price set. No matter how big or small the price change is. I would pay any price for air.
Define elastic demand?
Elasticity is the percentage change in one variable resulting from a percentage change in another variable. Thus, the price elasticity of demand is the percentage change in quantity demanded of a good resulting from a percent change in its price. Elastic demand means that the percentage change in quantity demanded of the good is greater than the percentage increase in price. This means that the demand for a good is very sensitive relative to price. Therefore, if the price increases by one dollar the quantity demanded for that good will decrease by a lot and if the price decreases by one dollar the quantity demanded for that good will increase by a lot. The determinants of price elasticity of demand are: substitutes of the good, percentage of income the good's price, and the need of the good. Substitutes are other goods that have the same or similar function to the particular good; if there are many substitutes then the price will be elastic in which the primary good becomes too expensive consumers will switch their demand to a close substitute, and if there are not many substitutes the price will be inelastic in which the primary good becomes very expensive consumers will have to buy that good no matter what. If the price of the good is a large percent of the consumer's income the elasticity of demand will be high, since the consumer will not want to spend the majority of their income on one good. If the good is a necessity, for example food, then people will have to buy it no matter the price therefore it will be very inelastic. If the good is a luxury good like a yacht then the demand elasticity will be very elastic.
If a good is a necessity with few substitutes then the price elasticity of demand will tend to be?
lower
How does a change in price on a linear demand curve affect total revenue?
on the linear demand curve, demand is elastic at price above the point of unitary elasticity so a price increase will decrease the total revenue.
