Answered

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How does an increase in the price of a substitute affect demand for a product?

A. It causes demand to go down because people are concerned about the higher price.
B. It causes demand to fluctuate because people are unsure of the market.
C. It causes demand to remain the same because people are not concerned with substitutes.
D. It causes demand to go up because the product is less expensive than its substitute.

Sagot :

GinnyAnswer

Final answer:

When the price of a substitute increases, it leads to a decrease in demand due to the substitution effect and a reduction in purchasing power through the income effect.


Explanation:

The substitution effect occurs when consumers react to a price increase of a good by buying less of that good and more of a substitute good. This leads to a reduction in quantity demanded. Additionally, the higher price reduces purchasing power, further lowering consumption via the income effect.


Learn more about Effect of price increase on demand for substitutes here:

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