Solution
In case of two commodities, say X and Y, consumer's equilibrium is attained when,
MUXPX=MUYPY
But, when price of good X rises,
MUXPX<MUYPY
which shows that rupee worth of satisfaction is less for X than for Y. Since X is now relatively expensive when compared to Y, the consumer will start consuming less of X and more of Y. As a consequence, MUYPY will start falling while MUXPX will start rising. The consumer will start buying more of X when,
MUXPX=MUYPY
Thus, when price of good X rises, demand for the same falls, assuming price of Y and income of the consumer is constant.
How does change in the prices of related good affect the supply of a good?
law of supply
all other factors being equal, there is a direct relationship between a good's price and the quantity supplied; as the price of a good increases, the quantity supplied increases; similarly, as price decreases, the quantity supplied decreases, leading to a supply curve that is always upward sloping.
What is the effect of decrease in price of substitute goods on demand of a product?
Changes in the price of one substitute good tends to change the demand for another substitute good. The demand for Good X is likely to decrease due a fall in the price of Good Y. This situation causes a decrease in the price of Good X due to excessive supply at the old equilibrium price.
How will the demand for good X change if the price of good y increases?
Answer and Explanation: The correct answer is: demand for good X will increase.
What will be the effect of a decrease in price of pen on the demand curve of paper?
The falling price of Pens increases demand for Paper, but the rising price of Pencils decreases demand for Paper.