Solution : When price of complementary goods increases, keeping other tactors constant, then demand for the given commodity decreases since it becomes relatively expensive to consume the two commodities (the given commodity and its complement) together. It will lead to excess supply. This leads to competition among sellers, which reduces the price. Fall in price leads to decrease in supply and rise in demand. These changes continue till supply and demand become equal at a new equilibrium price. As there is a decrease in demand only, both equilibrium price and equilibrium quantity will fall. Refer 'Decrease in Demand' given in Section 11.5 for diagrammatic explanation.
What happens when complementary goods increase in price?
Demand for a complementary good decreases when the price of the commodity rises.
What will be the effect on equilibrium price and equilibrium quantity when number of forms increased?
If market is in equilibrium and market demand as well as market supply for a commodity increase in the same proportion the price remains stable, there is no change in the equilibrium price but the equilibrium quantity will increase. Was this answer helpful?