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Theory Of Consumer Behaviour

Question
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Explain how the following influence demand for a good:
Fall in prices of the related goods.

Solution

Fall in Prices of the Related Goods: Related goods may be complementary or supplementary.

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” decreases. Ex. 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.

Some More Questions From Theory Of Consumer Behaviour Chapter

 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?

Differentiate between substitute and complementary goods.

What is meant by one good being substitute of other?

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