Question

What is the likely effect on the demand for a good when the price of its substitute increases?

• A. Demand for the good decreases
• B. Demand for the good remains unchanged
• C. Demand for the good increases
• D. Supply of the good decreases

Hint:

Remember, when the price of a substitute increases, demand for the original good tends to increase as consumers switch to the cheaper option.

Answer 1

The Correct Option is C

When the price of a substitute good increases, consumers are likely to shift their demand toward the cheaper alternative.
This is a basic principle of substitute goods: as the price of one substitute rises, the demand for the other good increases. For example, if the price of tea increases, consumers may buy more coffee as a substitute.
Option 1 is incorrect because a rise in the price of a substitute does not reduce demand for the original good. Option 2 is also incorrect because demand typically changes when the price of a substitute changes.
Option 4 is irrelevant since supply is not directly affected by the price of a substitute.