Goods X and Y are perfect substitutes. When the market price of good X is? $5/un

Question

Goods X and Y are perfect substitutes. When the market price of good X is? $5/unit, firm F produces 500 units of X. When the price of Y? rises, 100 consumers of Y shift to the consumption of good X. This causes industry analysts to believe that firm F has increased quantity supplied of X by 100 units to meet the higher demand for it. To arrive at this? conclusion, the industry analysts are assuming that

A. each person will now buy more of X than they did prior to the increase in the price of Y.

B. good Y is an inferior good.

C. good X is the only substitute of Y available to them.

D. the law of supply does not hold for good Y.

E. the new buyers of good X? will, on? average, consume one unit each.

Explanation / Answer

Answer C. Good X is the only substitute of Y available to them because Goods X and Y are perfect substitutes. If the price of Y increase then consumer can shift their demand for good X as the price of X remains same.Now consumer can buy more of X which is substitute of good Y.

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