Discussion
Consider the pair of goods X or Y. It is observed that when price of Y falls, the demand for X also falls. Which one of the following options would you choose regarding the nature of these goods ?
Answer: B
X and Y are substitute goods.
When the price of Y falls, Y becomes cheaper relative to X, so consumers buy more Y in place of X and the demand for X falls. A fall in the price of one good reducing demand for the other is the mark of substitutes, such as tea and coffee; their cross elasticity of demand is positive.
With complements, such as cars and petrol, a fall in Y's price would raise the demand for X, the opposite of what is observed. Inferior and Giffen goods describe how a good responds to income or its own price, not the relation between two goods.
Post your comment
Please log in or register to post a comment.
Examination Categories
- SSC Exams
- Banking Exams
- Teaching Exams
- Civil Services Exams
- Railways Exams
- Engineering Recruitment Exams
- Defence Exams
- State Government Exams
- Police Exams
- Insurance Exams
- Nursing Exams
- Other Government Exams
- NRA CET
- PG Entrance Exams
- Campus Placement
- MBA Entrance Exams
- CUET and UG Entrance
- Judiciary Exams
- Regulatory Body Exams
- Software Development