Question

1. explain how a decrease in price eliminates a surplus?
2. what is normal good inferior Goods?
3. explain good substitute and good completement

Answer 1

when the quantity supplied is greater than quantity demanded then surplus quantity exists is market .when the price is decreased the demand increases and if the supply is not increases the increase in demand eliminate surplus .

2)the normal good are those good whose demand has a direct positive relation with income which means if price of good remains same the quantity demanded will increase with increase in income whereas the inferior good are those goods whose demand has a inverse relationship with income which means if price is not changed quantity demanded will decrease with increase in income .

3)Any good which can be used in place of other good is called substitute good or any good which can act as an replacement for other good is called substitute good .If price of one substitute good rices the quantity demand of other substitute good increases .For perfect substitute good or good substitute the marginal rate of substitution of indifference curve is one .good compliment are those goods which are used together and their use is inter related for example shoe and polish .if the demand of one good increases the demand for other good also rises and if demand of one good falls the demand of other good will also fall in case of complimentary goods .