If tastes for a good increased and the price of a substitute good decreased at the same time, as a result:
A)prices would rise.
B)prices would fall.
C)larger quantities to be exchanged.
D)we would not know which direction either prices or quantities exchanged would be altered without more information.

Question

If tastes for a good increased and the price of a substitute good decreased at the same time, as a result:
A)​prices would rise.
B)​prices would fall.
C)​larger quantities to be exchanged.
D)​we would not know which direction either prices or quantities exchanged would be altered without more information.

Quizplus · Accepted Answer

This is known as the "ambiguous case" in economics, where the increase in demand for the good may lead to an increase in price, while the decrease in price of the substitute good may lead to a decrease in price of the original good. The direction of change in either price or quantity exchanged cannot be determined without more information.

If Tastes for a Good Increased and the Price of a Substitute