If tastes for a good decreased and the price of a substitute good increased at the same time, as a result:
A)prices would rise.
B)prices would fall.
C)larger quantities to be exchanged.
D)we would not know which direction either prices or quantities exchanged would be altered without more information.

Question

If tastes for a good decreased and the price of a substitute good increased at the same time, as a result:
A)​prices would rise.
B)​prices would fall.
C)​larger quantities to be exchanged.
D)​we would not know which direction either prices or quantities exchanged would be altered without more information.

Quizplus · Accepted Answer

This scenario presents conflicting forces that could lead to changes in both prices and quantities exchanged, making it impossible to predict the direction of change without more information. It's possible that the decrease in demand for the good could lead to lower prices, but the increase in demand for the substitute could lead to higher prices. Similarly, it's possible that consumers may switch more to the substitute due to the higher relative price, but this effect could be offset by the decrease in demand for the original good. Without more information about the magnitudes of these changes, we cannot determine the direction of change for prices or quantities exchanged.

If Tastes for a Good Decreased and the Price of a Substitute