Question

Refer to Exhibit 3-9. Consumers view X and Y as substitutes. If the price of Y increases as a result of a decrease in the supply of Y, an economist would expect a movement in the market for X from______________.

Answer 1

Answer:

Increase in Demand , Increase in Equilibrium Price & Equilibrium Quantity

Explanation:

Demand i.e buyers ability & willingness to buy, has a factor affecting : 'Price of Other Goods - Substitute Goods', which can be inter changeably used. Substitute goods' price & quantity are directly related because- rise in price of a good makes other good relatively cheaper & increases latter's demand and vice versa.

Similarly, If X & Y are substitutes - Increase in price of Y makes it relatively expensive, reduces its demand & increases X demand by making it  relatively cheaper (shifts demand curve rightwards).

Increase in X demand  & rightward shift in demand curve creates Excess Demand, causing competition among buyers & increasing EquilIbrium Price & equilibrium quantity at new equilibrium.