Explain how changes in prices of other products influence the supply of a given product.

Solution

If other things remain the same, the price of a product and its supply is directly proportional. But the relationship between supplies of a product due to changes in the price of other products is different. In other words, the supply of the good depends on the price of its substitute goods and on the price of its complementary goods. The supply of a given good shares positive (negative) relationship with the price of its substitute goods (complementary goods).
In Case of Substitute Goods: Let “A” and “B” are substitutes. If the price of the good “A” falls, then the consumer will shift their preference towards that good “A”. As a result, the demand for the good “B” reduces. Consequently, it is not profitable to supply this good.
“B”, thereby the supply of the “B” reduces. For example, tea and coffee are substitute goods. If the price of tea falls, then the supply of coffee will fall.
In Case of Complementary Goods: Suppose “M” and “N” is complementary goods. If the price of the goods “M” falls, then the consumer will shift their preference towards its complementary good “N”. This will lead to increase in the demand of the good “N”. As a result, it becomes profitable to supply more of the good. Thereby, the supply of the “N” increases. For example, petrol and car are complementary goods. If the price of petrol falls, then the supply of cars will increase.

Some More Questions From Theory Of Consumer Behaviour Chapter

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Theory Of Consumer Behaviour

Explain how changes in prices of other products influence the supply of a given product.

Some More Questions From Theory Of Consumer Behaviour Chapter

Define indifference curve.

What is meant by marginal rate of substitution (MRS)?

Why is MRS always diminishing?

When does a consumer attain equilibrium according to indifference curve approach?

Give meaning of demand.

Name two determinants of demand.

List the factors that cause changes in demand.

What is law of demand?

What is demand schedule?

Why does demand curve slope downwards?

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