If there are only two goods, an increase in the price of good 1 will increase the demand for good 2
A)if and only if the price elasticity of demand for good 2 is greater than 1 in absolute value.
B)whenever both goods are normal goods.
C)only if the two goods are perfect substitutes.
D)never.
E)none of the above.

Question

Quizplus · Accepted Answer

When the price of good 1 increases, consumers substitute it with the cheaper good 2. If the price elasticity of demand for good 2 is greater than 1 in absolute value, it means that consumers are very responsive to changes in the price of good 2 and will increase their demand for it when the price of good 1 increases.

If There Are Only Two Goods, an Increase in the Price