ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
100%

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. Good x is the only substitute of y available to them.

b. Each person will now buy more of x than they did prior to the increase in the price of y.

c. Good y is an inferior good.

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.

It’s apparently not b. 

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