Question

Good X and good Y are related goods. Holding everything else constant, if the price of good X decreases and the demand for good Y increases, good X and good Y are probably:

a) Complements
b) Substitutes
c) Normal Goods
d) Inferior Goods

Answer 1

When the price of good X decreases and demand for good Y increases, goods X and Y are likely complements, as their consumption is interdependent.

Step-by-step explanation:

If the price of good X decreases and the demand for good Y increases, then goods X and Y are likely complements. This scenario indicates a negative cross-price elasticity of demand, meaning that the goods are used together, and the consumption of one enhances the consumption of the other. In the case of complements, a lower price for good X leads to an increase in demand for good Y since buyers tend to use these goods together. Examples of complementary goods include gasoline and automobiles, or pasta and pasta sauce.