Final answer:
A change in the price of one good may affect the consumption of other goods due to substitution and income effects; complement goods may see a correlated demand shift, while substitutes can see a divergent shift in demand.
Step-by-step explanation:
The substitution effect occurs when a good becomes more expensive, leading consumers to seek out substitutes. A change in the price of one good can cause a ripple effect that influences the consumption and prices of other goods due to the substitution effect and the income effect.
For example, when two goods are complements, such as bread and peanut butter, a decrease in the price of bread might increase the quantity demanded of peanut butter because consumers are more likely to buy both together.
Conversely, when goods are substitutes, like plane tickets and train tickets, a decrease in the price of plane tickets may lead to decreased consumption of train tickets as consumers switch to the more affordable option.
Furthermore, the income effect plays a role; if the price of a good that a consumer regularly purchases falls, their effective buying power increases, allowing them to buy more goods overall. However, if the price of a regularly purchased good rises, their buying power decreases, potentially reducing their overall consumption.