Two goods that are substitutes would show what relation when the price of one rises?

• A. Complements
• B. Independent goods
• C. Inferior goods
• D. Substitute goods

Answer: (D)

When two goods are substitutes, they satisfy a positive cross-price effect: if the price of one good rises, people switch to the other, increasing its demand. So, the price increase in one good leads to more purchases of its substitute, reflecting a positive cross-price elasticity of demand. An example is coffee and tea: when coffee gets more expensive, many consumers buy more tea instead.

This is why the correct idea is that the other substitute becomes more demanded as the price of the first rises. Complements would see demand for the other fall when the price of one goes up, independent goods show no relationship, and inferior goods relate to income effects rather than the price of a related good.