A and B are substitute goods, but A and C are complementary goods. If the cost of producing A decreases, then the demand for
A) both B and C will decrease.
B) both B and C will increase.
C) B will increase and the demand for C will decrease.
D) B will decrease and the demand for C will increase.

Question

Quizplus · Accepted Answer

When the cost of producing A decreases, its supply increases, leading to a lower price for A. Since A and B are substitutes, consumers will buy more of A instead of B, decreasing the demand for B. Since A and C are complements, the lower price of A leads to an increase in its consumption, which increases the demand for C.

A and B Are Substitute Goods, but a and C