Economics of Demand

Complementary goods are those which, when there is a demand for one, there is an increase in demand for the other.
- Example:
- Pen and Ink: Increased demand for pens leads to increased demand for ink.
- Car and Fuel: Increased demand for cars leads to increased demand for fuel.
The essence of complementary goods is that a change in the demand for one good directly results in a change in demand for another good.

When two or more goods serve the same purpose, they are considered substitutable. One can be used in place of the other. This category falls under competitive demand.
- Examples:
- Fish and Meat: If the price of fish increases, consumers may switch to meat as a substitute.
- Club Soda and Tonic Water: If the price of club soda rises, consumers may choose tonic water instead.
The desired effect of competitive demand is that:
- A fall in the price of one good leads to an increase in the quantity demanded for that good, which may decrease the demand for its substitute.
- This dynamic arises when consumers perceive the goods as interchangeable or having similar utility.

Derived demand refers to the demand for a commodity that is not desired for its own sake but rather for its ability to produce another commodity.
- Examples:
- Labour: The labour force is demanded to produce services and goods. The demand for employees arises not for the sake of hiring people but to fulfill production needs.
The derived demand has an intrinsic relationship with the factors of production:
- The demand for resources fuels demand for production activities.
Effect of Derived Demand:
- A fall in demand for the final product will lead to a decrease in demand for the commodities that are tied to the production of that product.
- For instance, if the demand for cars drops, the demand for steel, rubber, and labour to manufacture cars will also decrease.