Correct Option: B. The demand for the original good will increase
Detailed Explanation:
- Understanding Substitute Goods:
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Substitute goods are products that can replace each other in consumption. For example, if the price of coffee rises, consumers might buy more tea instead, as tea serves as a substitute for coffee.
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Impact of Price Increase on Substitute Goods:
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When the price of a substitute good increases, consumers will look for alternatives that provide similar satisfaction or utility. This is a fundamental principle of consumer behavior in economics.
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Demand Curve Dynamics:
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The demand curve represents the relationship between the price of a good and the quantity demanded. When the price of a substitute good rises, the demand curve for the original good shifts to the right. This shift indicates an increase in demand at every price level for the original good.
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Assuming All Other Factors Constant:
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The phrase "assuming all other factors remain constant" refers to the ceteris paribus condition in economics. This means we are isolating the effect of the price change of the substitute good on the demand for the original good without considering other variables like consumer income, preferences, or the price of the original good itself.
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Conclusion:
- Therefore, if the price of a substitute good increases, consumers will likely buy more of the original good, leading to an increase in its demand.
Why Other Options Are Incorrect:
- A. The demand for the original good will decrease:
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This option is incorrect because an increase in the price of a substitute good does not lead to a decrease in demand for the original good. Instead, it encourages consumers to switch to the original good.
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C. The demand for the original good will remain unchanged:
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This option is also incorrect. If the price of a substitute good increases, it creates a change in consumer behavior, leading to an increase in demand for the original good. Therefore, demand cannot remain unchanged.
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D. The supply of the original good will increase:
- This option is incorrect because the question pertains to demand, not supply. An increase in the price of a substitute good affects consumer demand for the original good, not the supply side of the market.
Summary of Key Points:
- Substitute goods can replace each other; an increase in the price of one leads to increased demand for the other.
- The demand curve for the original good shifts to the right when the price of a substitute rises.
- The ceteris paribus condition allows us to isolate the effect of the price change on demand.
- Understanding consumer behavior is crucial in predicting changes in demand based on price fluctuations of related goods.