Related goods
Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Class 9, Ch 9 "The Price Puzzle: What Drives the Market"
Meaning
Related goods are goods whose demand is linked. A change in the price or supply of one good changes the demand for the other. There are two kinds:
- Substitute goods can replace each other, such as tea and coffee. The demand for one moves in the same direction as the price of the other.
- Complementary goods are used together, such as tea and sugar. The demand for one moves in the opposite direction to the price of the other.
Because of this link, the price of a related good is a key factor that decides demand. It shifts the whole demand curve of the other good.
Example
If coffee becomes costlier, people switch to tea, so the demand for tea rises. If sugar becomes costlier, people drink less tea, so the demand for tea falls. When the petrol price doubles, the demand for electric vehicles rises because they are a substitute. The demand for car accessories falls because they are a complement to driving a car.
Don't confuse with
- Unrelated goods: a price change in one has almost no effect on the other. Their cross elasticity is about zero, while related goods have a clearly positive or negative cross elasticity.
Related concepts
- Determinants of demand
- Substitute goods
- Complementary goods
- Consumer income
- Purchasing power
- Future price expectations
- Population size and composition
- Shift in demand curve
- Movement along the demand curve