Demand and Supply - Demand Shift pg-14

The simple table below summarizes what we have learned about the relationship between demand and the price of a substitute good. When the price of a substitute rises, demand shifts out (increases); when the price of a substitute falls, demand shifts back (decreases).

Price of Substitute Demand Shift
up arrow Arrow out
down arrow Arrow back

While it is quite easy to memorize this relationship, it's far better (and in the long run far easier) to understand it and save your memory for useful things like phone numbers. You can figure this relationship out quickly any time by simply remembering the logic behind it. If we consider the demand for some good, and we know that the price of a substitute for that good has fallen, it only makes sense that more of the substitute good would be purchased now that it's cheaper, leading to a reduction (shift back) in demand for the original good. Alternatively, if the price of a substitute good rises, less of it will be purchased so the demand for the original good will increase. The easiest way to do this is to think of two goods that you consider substitutes and ask yourself how your demand for one is affected by a change in the price of the other.

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