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Year 11 Economics Demand – Complement and Substitute Goods

question

What is the difference between a change in demand and a change in quantity demanded?
answer

A change in demand is caused by a change factors other than price – the entire curve moves. A change in the quantity demanded is caused by change in price only (ceterius paribus). It causes a movement along the curve.
question

What way does the curve shift if there is a increase in demand?
answer

Right
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What way does the curve shift if there is a decrease in demand?
answer

Left
question

Explain how an increased price of a complement good can cause a decrease in demand
answer

It will now cost more overall to purchase the good or service (new cars) and the complement (petrol) “together”, therefore demand decreases (for new cars). Note: It is the quantity demanded for the complement (petrol) that decreases (and not demand for petrol decreasing). This is because its price has increased – causing a “movement” up the demand curve (for petrol).
question

Explain how a decrease in the price of a substitute can cause a decrease in demand
answer

A consumer switches to using more of the substitute (Pepsi) “instead of” the good or service (Coca Cola) which is now “relatively” more expensive, therefore demand decreases (for Coca Cola) as it is now considered a “worse buy”. Note: It is the quantity demanded for the substitute (Pepsi) that increases (and not demand). This is because its price has decreased – causing a “movement” down the demand curve (for Pepsi).
question

Explain how an decreased price of a complement good can cause a increase in demand
answer

It will now cost less overall to purchase the good or service (new cars) and the complement (petrol) “together”, therefore demand decreases (for new cars). Note: It is the quantity demanded for the complement (petrol) that increases (and not demand for petrol increasing). This is because its price has decreased – causing a “movement” down the demand curve (for petrol).
question

Explain how a increase in the price of a substitute can cause a increase in demand
answer

A consumer switches to using less of the substitute (Pepsi) “and more of” the good or service (Coca Cola) which is now “relatively” more cheaper, therefore demand increases (for Coca Cola) as it is now considered a “better buy”. Note: It is the quantity demanded for the substitute (Pepsi) that decreases (and not demand decreasing). This is because its price has increased – causing a “movement” up the demand curve (for Pepsi).
question

Define and give an eg of a complement good
answer

Goods that are consumed together. eg coffee and muffin They are purchased together with each other You buy BOTH together If the price of one good falls (coffee) the quantity demanded increases but the other good (muffin) the price has not changed but there will be an increase in the demand for muffins – a shift of the curve to the right.
question

Define and give an eg of a substitute good
answer

Goods that are alternatives to each other. eg coffee and tea They are purchased instead of each other. You buy one OR the other If the price of one good falls (coffee) the quantity demanded increases but the other good (tea) the price has not changed but there will be an decrease in the demand for coffee as they are now relatively more expensive than before – a shift of the curve to the right.