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Question
If with the rise in the price of good Y, demand for good X rises, the two goods are: (Choose the correct alternative)
a. Substitutes
b. Complements
c. Not related
d. Jointly demanded
Solution
Substitutes
An increase in the price of Good Y causes an increase in the demand for Good X because these goods can be substituted with each other (e.g. coffee and tea). Increase in the price of coffee will increase the demand for tea, i.e. consumers will shift from the purchase of coffee to the purchase of tea.
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