Suppose that the demand curves for goods A, B, and C have the following functional forms:, where Q denotes quantity demanded and P denotes price: Q_A= 120 - 3.5P_A- 6P_BQ_B= 100 - 2P_B+ 3P_CQ_C= 1500 - 0.5P_C.
Based on these demand curves, which of the following pairs of goods are known to be substitutes?

Question

Quizplus · Accepted Answer

Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other good. Looking at the demand curves, we see that an increase in the price of B (P_B) leads to an increase in the demand for C (Q_C), indicating that B and C are substitutes. However, changes in the price of A do not affect the demand for B or C, so A is not a substitute for either. Therefore, the answer is C, B and C are substitutes.

Suppose That the Demand Curves for Goods A, B, and C