Elasticities Of Demand And Supply Practice Test

If an increase in the price of Good B leads to an increase in the demand for Good A, A and B are

Substitutes Complements Normal Inferior

Correct Answer:

Substitutes

Explanation:

This question tests the idea of substitutes in demand: two goods that can replace each other in consumption. When the price of one good rises, people switch to the other good, so demand for it increases. That positive response means the two goods are substitutes. For example, if coffee becomes more expensive, many buyers switch to tea, increasing tea’s demand. If the goods were complements, a higher price for one would reduce the demand for the other because they’re often used together, which would show a negative cross-price elasticity. The normal versus inferior distinction involves how demand changes with income, not with the price of a different good.

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