2024 · Q100
Suppose there are only two normal goods in the economy, X and Y. If price of good X increases, which would be the correct statement from below?
General KnowledgeIndian Economy
- ADemand for good X decreases and demand for Y is indeterminate.
- BDemand for good X decreases and demand for Y decreases.
- CDemand for good X increases and demand for Y is indeterminate.
- DDemand for good X increases and demand for Y decreases.
Explanation
For normal goods, a rise in the price of X reduces the quantity demanded of X by the law of demand. The effect on Y is indeterminate: if X and Y are substitutes, demand for Y rises; if complements, it falls; if unrelated, it is unchanged. With only the given information, Y's response cannot be pinned down. Hence option A is correct.