Question

In the case of two substitutable commodities (X and Y), when the price of X increases, the demand for Y

• A. Decreases
• B. Does not vary
• C. Increases
• D. Becomes zero

Hint:

Substitute Goods Rule: Price of X rises $\implies$ Demand for substitute Y INCREASES (Positive relationship).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Demand theory of substitute goods: an increase in the price of commodity X causes consumers to substitute away from X toward alternative commodity Y.
Key Formula or Approach:
\[ P_X \uparrow \implies Q_X \downarrow \implies Q_Y \uparrow \quad (\text{Positive Cross Price Elasticity } E_{XY} > 0) \]

Step 2: Detailed Explanation:
For substitute commodities (e.g., Cow Milk and Buffalo Milk, or Tea and Coffee):
- When the price of good X ($P_X$) increases, good X becomes relatively more expensive compared to good Y.
- Utility-maximizing consumers switch consumption away from higher-priced X to lower-priced Y (Substitution Effect).
- Consequently, the Demand for substitute good Y ($Q_Y$) Increases at every price level (shifting its demand curve to the right).

Step 3: Final Answer:
Thus, the demand for Y Increases, matching option (C).