How do changes in price typically affect the demand for substitute goods?

How do changes in price typically affect the demand for substitute goods?

• A. The demand remains unchanged
• B. The demand increases with a decrease in price of one good
• C. The demand decreases when one good's price increases
• D. The demand for substitute goods is unrelated to price

Answer: (B)

The correct answer is that the demand increases with a decrease in price of one good. This principle is rooted in the concept of substitution in economics. When the price of one good falls, it becomes more attractive to consumers compared to its substitute. As a result, consumers are likely to purchase more of the cheaper item and less of the substitute, leading to an increase in the demand for the good that has decreased in price. For example, if the price of coffee drops significantly, consumers who would typically purchase tea (the substitute) may choose to buy coffee instead, thereby increasing coffee's demand and decreasing tea's demand at the same time. This interrelationship highlights how changes in the pricing of one good can shift consumer preferences and affect demand for substitutes. In contrast, choices that suggest the demand remains unchanged or that it is unrelated to price do not capture the dynamic nature of consumer behavior regarding substitutes. Demand reactions are intricately linked to price changes in situations where alternatives are available.

The correct answer is that the demand increases with a decrease in price of one good. This principle is rooted in the concept of substitution in economics. When the price of one good falls, it becomes more attractive to consumers compared to its substitute. As a result, consumers are likely to purchase more of the cheaper item and less of the substitute, leading to an increase in the demand for the good that has decreased in price.

For example, if the price of coffee drops significantly, consumers who would typically purchase tea (the substitute) may choose to buy coffee instead, thereby increasing coffee's demand and decreasing tea's demand at the same time. This interrelationship highlights how changes in the pricing of one good can shift consumer preferences and affect demand for substitutes.

In contrast, choices that suggest the demand remains unchanged or that it is unrelated to price do not capture the dynamic nature of consumer behavior regarding substitutes. Demand reactions are intricately linked to price changes in situations where alternatives are available.