Goods X and Y are perfect substitutes. When the market price of good X is? $5/unit, firm F produces 500 units of X. When the price of Y? rises, 100 consumers of Y shift to the consumption of good X. This causes industry analysts to believe that firm F has increased quantity supplied of X by 100 units to meet the higher demand for it. To arrive at this? conclusion, the industry analysts are assuming that

A. each person will now buy more of X than they did prior to the increase in the price of Y.

B. good Y is an inferior good.

C. good X is the only substitute of Y available to them.

D. the law of supply does not hold for good Y.

E. the new buyers of good X? will, on? average, consume one unit each.

Question

Malachi Tanner

Business

4 October, 23:57

Goods X and Y are perfect substitutes. When the market price of good X is? $5/unit, firm F produces 500 units of X. When the price of Y? rises, 100 consumers of Y shift to the consumption of good X. This causes industry analysts to believe that firm F has increased quantity supplied of X by 100 units to meet the higher demand for it. To arrive at this? conclusion, the industry analysts are assuming that

A. each person will now buy more of X than they did prior to the increase in the price of Y.

B. good Y is an inferior good.

C. good X is the only substitute of Y available to them.

D. the law of supply does not hold for good Y.

E. the new buyers of good X? will, on? average, consume one unit each.

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Answers (1)

Know the Answer?

Susie Q · Answer 1

C

Explanation:

When two goods are perfect substitutes, the smallest price increase in one of them will cause the demand to drop to 0 for the increased price item.

Now, this says that all the quantity of Y goes directly to X, if there were another perfect substitute, say Z, what is not consumed in Y would be divided between X and Z. But in this case all the quantity of Y goes directly to X,