If two goods are substitutes, what happens when the price of one rises?

• A. Substitute goods
• B. Complementary goods
• C. Normal goods
• D. Inferior goods

Answer: (A)

When two goods are substitutes, they satisfy similar wants, so they can replace each other in consumption. If the price of one rises, buyers switch to the cheaper alternative, boosting the quantity demanded of the substitute. This positive cross-price effect means the substitute becomes relatively more attractive, and demand for it increases. (The original good’s demand would fall as some buyers switch away.) Complementary goods would move in the opposite direction when one price changes, and normal vs inferior relates to income effects, not substitution. So the situation described aligns with substitute goods.