If two goods are substitutes, what happens when the price of one rises?

Question

BlackTom AI · Accepted Answer

Let’s break down the scenario to understand how substitutability affects demand when the price of one good changes.
Option A: 'Supply for one good will increase.' This statement confuses demand with supply. The price change of one good influences the demand for related goods, not the supply decisions of that good, so this option misattributes the effect to supply dynamics.
Option B: 'Demand for both goods increases.' If two goods are substitutes, an increase in the price of one makes consumers shift toward the other substitute, not raise demand for both. Therefore, this option overstates the effect and is inconsistent with the substitute relationship.
Option C: 'Demand for the first good decreases.' When the price of the first good rises, buyers tend to purchase less of it, all else equal. Since the goods are substitutes, some of the demand shifts away from the now more expensive good, reducing its quantity demanded. This aligns with the standard substitution effect and is therefore correct.
Option D: 'Demand for the other good will increase.' With one substitute becoming relatively more expensive, consumers substitute toward the cheaper alternative, boosting its demand. This is the classic substitution effect in action for substitutes.
In summary, the two correct implications in this scenario are that the first good’s demand falls when its price rises, and the other substitute’s demand rises as consumers switch resources to the cheaper option. The remaining options misstate the mechanism by referring to supply changes or to a universal increase in demand across both goods.

If two goods are substitutes, what happens when the price of one rises?

查看解析

登录即可查看完整答案

类似问题

When the price of Blu-ray players dropped, the demand for DVD players went down. This tells us that DVD players and Blu-ray players are

Suppose that the demand for emu leather falls after a decrease in price of snake skin. This would mean that emu leather is:

When the price of Blu-ray players dropped, the demand for DVD players went down. This tells us that DVD players and Blu-ray players are

Jamestown heating and air-conditioning company specializes in electric heat pumps. The business should keep track of the price of natural gas, knowing that

MC Qu. 101 If the price of gasoline increases significantly... If the price of gasoline increases significantly, then we’d expect the price for hybrid and electric cars to BlackTom Analysis

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

If two goods are substitutes, what happens when the price of one rises?

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单