Question:
Suppose good X and good Y are substitutes. What will be the effect on the equilibrium price and quantity of good X of an increase in the supply of good Y?
(1) increases / decreases
(2) decreases / decreases
(3) increases / increases
(4) decreases / increases
(5) increases / unchanged
Correct Answer:
(2)
Answer Explanation:
An increase in the supply of Y lowers the price of Y. Because X and Y are substitutes, consumers will switch to the now-cheaper Y. This causes a decrease (leftward shift) in the demand for X. Lower demand for X results in both a lower equilibrium price and a lower equilibrium quantity for X.
Topic: Market Equilibrium Year: 2024
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