The price of “snufooos” increases and the demand for “gridzies” goes down. Therefore, “snufooos” and “gridzies” are considered:...

The price of “snufooos” increases and the demand for “gridzies” goes down. Therefore, “snufooos” and “gridzies” are considered:

		substitute goods
		complementary goods
		inferior goods
		luxury items

Expert Solution

Substitutes are those goods which can replace each other

For example tea and coffee

Complements are those good which complete each other

Example can be pen and paper

If we have to find out whether a good is a luxury, inferior ,normal good then we have to study the income elasticity of demand

Income elasticity of demand is studied only for one good

But here in the question there are two goods so we have to find that whether they are complements or substitutes to each other on the basis of cross price elasticity of demand

Since the increase in the price of snufoos causes fall in the demand of gridzes as well

It means both of them are complements to each other

Answer is option b

Rahul Sunny answered 2 years ago

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