Answer to Question #233954 in Finance for Lee3415

Question

Question 3
As a group/individual choose a familiar product. Explore the demand for your product.
3 What is your product? (2)
________________________________________

Draw graphs of your product for each scenario accompanied by an explanation:
a) A substitute for your product
Insert graph here


b) A complement for your product
Insert graph here


c) An inferior good in comparison to your product
Insert graph here


d) A change in price for your product (8)
Insert graph here

Answer 1

Solution:

My product is Tea.

a.). A substitute for your product:

The substitute for my product is coffee.

The demand for Tea increases from Q to Q₁ as the price of Coffee increases from P to P₁ as shown on the below graph. This is because consumers will substitute Coffee for Tea since the Tea prices have not changed, while the prices for coffee have increased.

 

This is displayed by the below graph:

b.). A complement for tea is sugar.

When the price of sugar increases, the demand for Tea will decrease and vice versa. Similarly, if the price of tea increases, the demand for sugar will decrease and vice versa.

 

This is displayed by the below graph:

c.). An inferior good in comparison to my product is Black Tea.

When consumer's income increases, the demand for black tea, which is an inferior good compared to green Tea will decrease.

 

This is displayed by the below graph:

d.). A change in the price of my product will either shift the demand curve to the right or left.

When the price of Tea increases, the quantity demanded will drop massively. Shifting the demand curve to the left. Similarly, when the price of Tea decreases, the quantity demanded for tea will increase, causing the demand curve to shift to the right.

 

This is displayed by the below graph: