Question:
What is the likely effect on the demand for a good when the price of its substitute increases?
What is the likely effect on the demand for a good when the price of its substitute increases?
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Remember, when the price of a substitute increases, demand for the original good tends to increase as consumers switch to the cheaper option.
Updated On: Jun 26, 2025
- Demand for the good decreases
- Demand for the good remains unchanged
- Demand for the good increases
- Supply of the good decreases
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The Correct Option is C
Solution and Explanation
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.
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.
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