Which of the following statements represents a correct and sequentially accurate economic explanation?
A)Good X is an inferior good and good Y is a substitute for X. Income rises, the demand for X falls, the price of X falls, and the demand for Y rises.
B)Good X is an inferior good and good Y is a substitute for X. Income rises, the demand for X falls, the price of X falls, and the demand for Y falls.
C)Good X is an inferior good and good Y is a substitute for X. Income falls, the demand for X rises, the price of X rises, and the demand for Y falls.
D)Good X is an inferior good and good Y is a substitute for X. Income rises, the quantity demanded of X rises, the price of X rises, and the demand for Y falls.

Question

Quizplus · Accepted Answer

According to the law of demand, when income rises, the demand for inferior goods like X falls. Since Y is a substitute for X, the demand for Y rises as the demand for X falls. As a result, the price of X falls due to the decrease in demand, which in turn decreases the demand for Y as well (as X becomes cheaper, consumers are more likely to purchase X instead of Y). Therefore, the correct sequence is income rises -> demand for X falls -> price of X falls -> demand for Y falls.

Which of the Following Statements Represents a Correct and Sequentially