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Question
State the impact of the following changes on the demand curve of a commodity:
Increase in the supply of a substitute commodity
Solution
If the supply of substitute products increases, so will the demand for the substitute good, since when the the price of one good falls while the price of its alternative remains constant, the substitute good becomes more expensive. Thus, a rational buyer will swap a cheaper commodity for a more expensive one, resulting in increased demand for the now-cheaper good.
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