Economics Essay

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Q1a REDUCTION IN THE PRICE OF A COMPLEMENT FOR TEA A complement good is a good that is used together with some other good. A complement good for tea is sugar. S PRICE “A reduction in the price of a complement good increases the demand for a good, shifting the demand leave to the right. “ Robert Hall – page 57 this being the case since the price of complement of tea has decreased more people can afford the joint goods. The demand for tea rises. P1 P0 D1 Do Q1 Q0 0 Q1b.THE REDUCTION IN THE PRICE OF A SUBSTITUTE FOR TEA A substitute is a good that can be used in place of some good and fulfils more or less the same purpose said, Robert E. Hall (2003:54). Ray C. Fair noted that substitutes are goods that can serve as a replacements for one another, when the price of one increases, demand for the other goes up” In our case the substitute for tea is coffee. And when the price of substitute is reduced the demand for tea will reduce shifting the demand carve to the left, because people can now afford to buy the substitute at a lower price, than the competitive good. Price Quantity D1 P1 P0 Q1 Q0 DO s A DECREASE INCOME, WHERE TEA IS AN INFERIOR GOOD Generally the increase in consumer income makes possible for consumers to purchase more goods. This was noted by David Macpherson (2003: 62) in his book Macroeconomics. Robert Hall ( 2004:55) states that “The demand for most goods (normal goods) is positively related to income or wealth. A rise in either income or wealth will increase demand for these goods and shift demand curve to the right. But not for all goods. For goods called inferior goods which people demand less of as their income rises and demand more as their income decreases. When tea is an inferior good the decrease in income will shift the demand curve to the right – more is bought – demanded. S DECREASE INCOME TEA

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