Answer to Question #322945 in Microeconomics for Wenny

Question

Suppose Colgate and Doctor Toothpastes are substitutes of each other; explain the effect of an increase in the price of Colgate on demand of Doctor Toothpaste? Also illustrate diagrammatically this change in the demand of Doctor Toothpaste will be entitled as 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.