Question

Consider two goods that are substitutes. A price increase for one good will cause the quantity demanded of that good to_________. The quantity demanded of the substitute good will ________. When two goods are complements of each other, a price _________ for either product will cause ____________ of both goods to decline.

Answer 1

Answer:

The correct answer is: decrease; increase; increase; quantity demanded

Explanation:

A substitute of a good is that good which can be used in its place, for instance, tea and coffee.

So when price of a good increases its quantity demanded will decline because of law of demand. The consumers will prefer the cheaper substitute. So more of the substitute good will be demanded.

Now, if two goods are complements it means they are used together, for instance, car and fuel. So when price of a good increases, the consumers are able to afford fewer quantity of the good.

So consumers will purchase less of both the good as well as it's complement.