Question

Good X and Good Y are substitute goods. If price of Good X increases, discuss briefly its likely impact on the demand for Good Y.

Answer 1

Substitute goods refer to those goods that are consumed in place of each other. For example Tea and coffee, etc. In the given question, two goods X and Y are substitute goods. If the price of Good X increases, the demand for Good Y will increase. If the price of the X (substitute good) rises, then demand for X will fall. As X and Y are substitute goods, so the demand for Y will increase since it is a cheaper good now. This shifts the initial demand curve for Y parallelly rightwards.