Suppose goods X and Y are complements, and the price of good Yincreases. Which of...

Suppose goods X and Y are complements, and the price of good Y increases. Which of the following is TRUE?

The demand for X decreases.
Quantity demanded for Y will decrease.
The price of X will increase.

options:

	I, II, and III.
	I only.
	II and III only.
	I and II only.

If X and Y are substitutes, and if the marginal cost of producing X increases, then which of the following WILL occur?

The quantity demanded of X will decrease.
The equilibrium price of Y will increase.
The supply of X will increase.

options:

	I only.
	I and II only.
	II only.
	I, II and III.

Solutions

Expert Solution

According to the law of demand, as the price of commodity increases, the quantity demanded falls. So, as price of Y increases the quantity demanded of Y will decrease. So, option 2 is correct. If X and Y are complements, then as the price of Y increases, this means that the demand for X falls. As the demand for X decreases, the demand curve shifts to the left, thereby the price of X falls. Therefore, option 1 is correct and 3 is not correct. Therefore, the answer to this question is d) 1 and 2

As the price equals marginal cost, as the marginal cost of producing X increases, so does the price of X increase. As the price of X increases, the quantity demanded of X will decrease following the law of demand. Therefore, option 1 is correct. Since X and Y are substitutes, as the price of X increases, then demand for Y will increase as people will prefer the cheaper option given that X and Y are substitutes. So, the demand for Y increases. As the demand curve of Y shifts to the right, the price of Y will increase. Therefore option 2 is correct. So, the correct answer is b) 1 and 2 only

Rahul Sunny answered 1 year ago

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