A and B are substitute goods, but A and C are complementary goods (in consumption).If the costs of production of A decrease, then the demand for:

Question

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When the costs of production for A decreases, the demand for A is likely to increase due to lower prices. As A and B are substitute goods, the increase in demand for A will lead to a decrease in demand for B. On the other hand, since A and C are complementary goods, the decrease in the cost of production for A will likely increase the demand for C, as A becomes a cheaper complement to C. Therefore, the demand for B will decrease while the demand for C will increase. Choice D correctly states this outcome.

A and B Are Substitute Goods, but a and C