CBSE Class 12-commerce Answered

Demand for a commodity in relation to price of the substitute good:

Assume tea and coffee is the two substitute goods. D₁ is the demand curve for the demand of tea in Fig (a).

Increase in price of substitute good:

When the price of tea is OP₁, the quantity demanded is OT₁ as shown in Fig (a). If there is an increase in the price of substitute good, coffee, the demand curve for tea shifts to the right. Now, the consumer is willing to buy P₁C₂ quantity of tea which is equal to OT₂. Greater the purchase of a commodity at its constant price points to a situation of increase or forward shift in demand curve. The consumer demand curve shifts from D₁ to D₂, consuming more of tea even when its price is constant.

Decrease in price of substitute good:

When there is a decrease in the price of substitute good, coffee, the demand curve for tea shifts to the left even when its price is constant. When the price of tea is OP₁, the quantity demanded is OT₁ as shown in the Fig (b). Now, the consumer is willing to buy P₁C₂ quantity of tea which is equal to OT₂. Thus, the consumer shifts from D₁ to D₂, consuming less of tea even when the price of tea is constant. This is a situation of backward shift in demand curve.