Two goods are substitutes when an increase in the price of one good causes the demand for the other good to:
Correct answer: B. Increase because consumers switch between them
- A. Decrease because purchasing power falls
- B. Increase because consumers switch between them
- C. Remain unchanged because prices are unrelated
- D. Increase only when both goods are inferior
Explanation
Substitute goods can perform similar functions, so consumers shift toward the relatively cheaper good. Therefore, a rise in the price of one increases demand for the other, other factors remaining constant.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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