Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are
a. complementary goods.
b. normal goods.
c. inferior goods.
d. substitute goods.
The correct answer and explanation is :
The correct answer is:
a. complementary goods.
Explanation:
In economics, goods can be classified based on how they relate to one another in terms of demand. These relationships can be categorized as complementary goods, substitute goods, or neither. Let’s break down what these terms mean and how they apply to the situation described.
- Complementary Goods:
Complementary goods are those that are typically consumed together. For example, if the price of one good decreases, the demand for the other good also decreases. In this case, the scenario states that a decrease in the price of Good X results in fewer units of Good Y being demanded. This implies that the two goods are complementary because a price decrease in Good X leads to a reduction in demand for Good Y, which suggests they are usually used together. An example of complementary goods would be printers and ink cartridges or coffee and sugar. - Substitute Goods:
Substitute goods are those that can replace each other in consumption. If the price of Good X decreases, the demand for Good Y would generally increase (as people would switch from Good Y to Good X due to its lower price). However, the scenario describes a decrease in the price of Good X leading to a decrease in the demand for Good Y, so this is not a case of substitute goods. - Normal Goods:
Normal goods are goods for which demand increases when income increases. The relationship described here between Good X and Good Y is not related to income changes but rather to the price change of Good X affecting the demand for Good Y, so this is not a case of normal goods. - Inferior Goods:
Inferior goods are goods for which demand decreases as income increases. Again, the situation here is related to price changes and not income, so it is not a case of inferior goods either.
Thus, the correct classification of goods X and Y is that they are complementary goods.
The image above illustrates the concept of complementary goods, showing the relationship between Good X and Good Y. As the price of Good X decreases, the demand for Good Y decreases as well. This type of relationship is typical of complementary goods, which are often used together. In the example, a printer and ink cartridge are depicted as complementary goods, where the demand for ink cartridges might drop if the price of the printer decreases.