In the locality of Pitampura, the price of sugar is Rs.60 per kg and that of tea leaves is Rs. 50 per kg. One day, the price of sugar rose from Rs. 60 to Rs. 70 per kg. This will show some impact on the demand of sugar.
According to you, what will be the relation between price of sugar and demand for tea leaves?
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: Opposite
This is a case of complementary goods, assuming that sugar and tea leaves are consumed together (as they often are when making tea).
-
When the price of sugar rises, its demand falls.
-
Since tea leaves and sugar are complements, a fall in demand for sugar will likely lead to a fall in demand for tea leaves as well.
-
Thus, the price of sugar and the demand for tea leaves move in opposite directions.