Question

Examples like Tea and Coffee, Pepsi and Coca-Cola, etc., are:

• A. Substitutes
• B. Complementaries
• C. Superior goods
• D. Inferior goods

Hint:

Types of Goods by Demand Relationship: - Substitute Goods: Used in place of each other (e.g., tea/coffee, butter/margarine, Pepsi/Coke). An increase in the price of one leads to an increase in demand for the other. Positive cross-price elasticity of demand. - Complementary Goods: Used together (e.g., car/petrol, bread/butter, printer/ink). An increase in the price of one leads to a decrease in demand for the other. Negative cross-price elasticity of demand. Types of Goods by Income Relationship: - Normal Goods: Demand increases with income (e.g., most goods). - Luxury Goods: A type of normal good where demand increases more than proportionally to income. - Inferior Goods: Demand decreases with income (e.g., low-quality staples when income rises).

Answer 1

The Correct Option is A

Step 1: Define the types of goods listed in the options based on their relationship in consumption.
- Substitutes (Substitute Goods): Goods that can be used in place of each other to satisfy a similar want or need.
If the price of one substitute good increases, the demand for the other substitute good tends to increase (and vice versa).
- Complementary Goods (Complements): Goods that are typically consumed together.
If the price of one complementary good increases, the demand for the other complementary good tends to decrease (and vice versa).
Examples: cars and petrol, printers and ink cartridges.
- Superior Goods (Normal Goods): Goods for which demand increases as consumer income increases.
- Inferior Goods: Goods for which demand decreases as consumer income increases (consumers switch to better alternatives).

Step 2: Analyze the given examples.
- Tea and Coffee: These are classic examples of substitute goods.
A consumer might choose coffee instead of tea (or vice versa) for a hot beverage, depending on preference, price, etc.
- Pepsi and Coca-Cola: These are also classic examples of substitute goods in the carbonated soft drink market.
Consumers often switch between them based on availability, price, or slight taste preferences.

Step 3: Classify the examples.
The examples provided (Tea and Coffee, Pepsi and Coca-Cola) are pairs of goods that can be used for the same purpose and are thus substitutes for each other.
This matches option (1).