Suppose there are only two normal goods in the economy, X and Y. If price of good X increases, which would be the correct statement from below?
- A. Demand for good X decreases and demand for Y is indeterminate. ✓
- B. Demand for good X decreases and demand for Y decreases.
- C. Demand for good X increases and demand for Y is indeterminate.
- D. Demand for good X increases and demand for Y decreases.
Correct Answer: A. Demand for good X decreases and demand for Y is indeterminate.
Explanation
If the price of good X increases, the demand for X decreases. The demand for Y is indeterminate as it depends on whether X and Y are substitute or complementary goods.
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