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Question
The demand for a Good X increases when the price of its substitute ______ OR when the price of its complements ______.
Options
rises: rise
rises: falls
falls: rises
falls: falls
Solution
The demand for a Good X increases when the price of its substitute rises OR when the price of its complements falls.
Explanation:
The demand for a good X increases when the price of its substitute rises (because consumers switch from the now more expensive substitute to good X), or when the price of its complement falls (because the lower price of the complement increases its demand, which in turn increases the demand for good X).
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RELATED QUESTIONS
From the set of statements given in Column I and Column II, choose the correct pair of statements:
| Column I | Column II |
| A. Normal goods | (i) Goods the demand for which tends to fall with increase in income. |
| B. Inferior goods | (ii) Goods which cannot be used in place of one another. |
| C. Substitute goods | (iii) Goods which can be used in place of one another. |
| D. Joint demand | (iv) Goods the demand for which rise with increase in income. |
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