Question

On the basis of above visual depiction, identify the correct statement from the following.

Options

• Fall in the price of one good - decreases the demand for the other good.

• Rise in the price of one good - increases demand for the other good.

• Rise in the price of one good - decreases the demand for the other good.

• Rise in price of one does not affect the demand for the other.

Answer 1

Rise in the price of one good - increases demand for the other good.

Explanation:

The diagram illustrates how substitute goods behave when market conditions change. It explicitly shows that if the price of Coca-Cola rises, the demand for its direct substitute, Pepsi, goes up because consumers naturally switch to the relatively cheaper alternative.