Goods X and Y are perfect substitutes When the market price

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.

Solution

Answer C. Good X is the only substitute of Y available to them because Goods X and Y are perfect substitutes. If the price of Y increase then consumer can shift their demand for good X as the price of X remains same.Now consumer can buy more of X which is substitute of good Y.