Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

Question

BlackTom AI · Accepted Answer

When analyzing the effect of a fall in the price of A on goods A and B that are close substitutes, we start by distinguishing between the quantity demanded (a movement along the own demand curve) and demand (a shift of the entire demand curve).
Option 1: 'Increase in the demand for A and an increase in the quantity of B demanded' is incorrect. A fall in the price of A directly increases the quantity demanded of A (movement along A's own demand curve), not the overall demand for A. Moreover, B becomes less attractive as a substitute, so the quantity demanded of B would not rise; it would fall or stay unchanged at the same price level.
Option 2: 'Increase in the demand for A and a decrease in the quantity of B demanded' is flawed because the price drop of A does not shift A's demand curve outward; it changes A’s quantity demanded along its curve. The statement also mixes the idea of a quantity change for B with a demand change; typically, B’s quantity demanded would fall along its own curve due to substitution, not necessarily a decrease in demand for B as a whole. This makes the option inconsistent with standard substitution effects.
Option 3: 'Increase in the quantity of A demanded and a decrease in the demand for B' correctly captures the key ideas. The fall in A's price causes more people to buy more of A (higher quantity demanded along A’s curve). Because A and B are substitutes, some buyers switch from B to A, reducing the demand for B (a leftward shift of B’s demand curve) or, at minimum, reducing B’s quantity demanded at the original price. This option aligns with the substitution effect in consumer choice.
Option 4: 'Increase in the demand for good A as well as for good B' would imply both goods’ demand curves shift outward, which would not occur when the price of A falls. Since A becomes relatively cheaper, consumers do not simultaneously demand more of B in a way that shifts B’s entire demand curve outward; the substitution effect works in the opposite direction for B.
In summary, the only statement that accurately reflects the standard substitution-side effect of a fall in A’s price for close substitutes is that the quantity demanded of A rises while the demand for B falls.

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:Multiple choice

Similar Questions

When the price of Blu-ray players dropped, the demand for DVD players went down. This tells us that DVD players and Blu-ray players are

Suppose that the demand for emu leather falls after a decrease in price of snake skin. This would mean that emu leather is:

When the price of Blu-ray players dropped, the demand for DVD players went down. This tells us that DVD players and Blu-ray players are

Jamestown heating and air-conditioning company specializes in electric heat pumps. The business should keep track of the price of natural gas, knowing that

MC Qu. 101 If the price of gasoline increases significantly... If the price of gasoline increases significantly, then we’d expect the price for hybrid and electric cars to BlackTom Analysis

If two goods are substitutes, what happens when the price of one rises?

If two goods are substitutes, what happens when the price of one rises?

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler