People buy more of good 1 when the price of good 2 rises. These goods are. A. normal goods B. complements C. substitutes D. inferior goods
Question
People buy more of good 1 when the price of good 2 rises. These goods are. A. normal goods B. complements C. substitutes D. inferior goods
Solution
The answer is C. substitutes.
Here's why:
When the price of Good 2 rises, people switch to buying more of Good 1 because they see it as a similar or suitable alternative. This behavior indicates that Good 1 and Good 2 are substitutes for each other. If they were complements, a price increase in Good 2 would lead to a decrease in the demand for Good 1 because people tend to buy complement goods together. Normal goods and inferior goods are terms that describe a good's relationship with income, not with other goods, so they don't apply in this context.
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