Cross Price effects: Effect of change in price of complementary good on the demand of other good.
Learning Contents: · Effect of Increase in price on the demand of complementary goods. · Effect of Decrease in price on the demand of complementary goods. Introduction In the previous post that explored how a change in the price of substitute good changed the demand for the other good. The demand for the substitute good is positively related to the price of other good. In this post, we will study how a change in the price of complementary goods affects the demand for the other good that can be studied in the following situations: a. Increase in the price of complementary good b. Decrease in the price of complementary good Complementary goods These are the goods which are consumed together such as Bread and Butter, Car and Fuel, Lock and Key, etc. Here, the consumption of one good is dependent upon the consumption of other. a. Increase in the price of complementary good Deman