Question

If most buyers regard two goods X and Y as _______________, then when the price of good Y increases,

the market demand for good X will __________________.

Select one:

a. substitutes, shift outward

b. substitutes, shift inward

c. complements, shift outward

Answer 1

Question

If most buyers regard two goods X and Y as _______________, then when the price of good Y increases,

the market demand for good X will __________________.

Answer

a. substitutes, shift outward

Explanation

Two goods are said to be substitutes when one good can replace the other good in terms of consumption. When good X and good Y are substitutes, it means that good X can be consumed instead of good Y and vice versa.

Example - Tea and Coffee

When two goods - X&Y are substitutes and price of good Y increases, automatically consumers will start buying good X which is relatively cheaper. This creates a rise in market demand for good X becuase it is cheaper when compared to good Y and can be substituted with good Y, therefore consumers will shift their preferance to good X.

Graphically, increase in price of good Y will result in increase in consumer demand for good X which causes a shift in the market demand curve outwards (right).