Answer to Question #322837 in Microeconomics for hasan

Question

Suppose Colgate and Doctor Toothpastes are substitutes for each other; explain the effect of an increase in the price of Colgate on the demand for Doctor Toothpaste? Also, illustrate diagrammatically this change in the demand for Doctor Toothpaste will be entitled as a change in quantity demanded or change in demand curve?

Answer 1

The substitution effect is rampant during price fluctuations, relevant to the income of the consumers. An increase in the price of Colgate leads to an increased demand for its substitute Doctor toothpaste, which is less expensive. The quantity demanded Doctor toothpaste will increase without a significant change in the consumer's purchasing power. The demand curve slopes downwards.