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Question
Two commodities A and B can be inferred as close substitutes of each other if ______.
Options
Rise in price of one leads to an increase in demand of other and vice-versa
Rise in price of one leads to a decrease in demand of other and vice-versa
Fall in price of one lead to fall in demand of other one, but not the other way round
Rise in price of one lead to rise in demand of other one, but not the other way round
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Solution
Two commodities A and B can be inferred as close substitutes of each other if Rise in price of one leads to an increase in demand of other and vice-versa.
Explanation:
With substitutes, a rise in one good’s price increases demand for the other, and the relationship works both ways. Complementary goods instead have an inverse cross-price relationship.
