ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Therefore, these goods can be used in place of each other. Therefore, when butter prices increase, people will switch to consuming margarine as it becomes cheaper than butter, giving consumers the same level of utility. Thus, it will lead to an increase in the demand for margarine instead of butter.

Detailed explanation-2: -Butter and margarine are substitute goods for most people. Therefore, an increase in the price of margarine will cause people to increase their consumption of butter, thereby shifting the demand curve for butter out from D1 to D2 in Figure 2.2.

Detailed explanation-3: -If the price of margarine decreases then the demand for butter decreases and the supply of margarine increases because margarine is the substitute for butter. The equilibrium price and quantity of butter would decrease. If butter and margarine were not substitutes, there would be no change in the demand for butter.

Detailed explanation-4: -When the price of a good falls, then people tend to reduce the purchase of its supplementary good. For example, butter and margarine are complementary goods, so when the price of butter falls. then there is a reduction in the required amount of margarine.

Detailed explanation-5: -If butter’s price fall, then the consumers will consume more quantities of butter. As a result, the consumers will reduce their consumption of margarine leading to a decline in demand. A reduction in demand for margarine is shown by the leftward change in the demand curve for margarine.