Correct Option: C. Demand for the original good will increase Explanation of the Correct Answer:

1. Understanding Substitute Goods: Substitute goods are products that can replace each other in consumption. For example, if the price of coffee increases, consumers may choose to buy tea instead, as it serves a similar purpose.
2. Price and Demand Relationship: According to the law of demand, when the price of a good increases, the quantity demanded for that good typically decreases. However, when we talk about substitute goods, the dynamics change. If the price of a substitute good rises, consumers will look for alternatives that are now relatively cheaper.
3. Impact of Price Increase on Demand: When the price of the substitute good increases, consumers will likely switch their consumption to the original good. This switch occurs because the original good has become more attractive in comparison to the now more expensive substitute. As a result, the demand for the original good increases.
4. Graphical Representation: If we were to illustrate this on a demand and supply graph:
5. The demand curve for the original good would shift to the right (indicating an increase in demand) as consumers substitute away from the more expensive good.
6. The equilibrium price and quantity of the original good would rise as a result of this increased demand.
7. Real-World Example: Consider the market for butter and margarine. If the price of butter rises significantly, consumers may start buying more margarine instead. This increase in demand for margarine (the original good) is a direct result of the price increase of its substitute (butter).

Explanation of Why Other Options Are Incorrect:

• Option A: Demand for the original good will decrease: This option is incorrect because a price increase in a substitute good does not lead to a decrease in demand for the original good. Instead, it leads to an increase in demand as consumers switch to the cheaper alternative.
• Option B: Demand for the original good will remain unchanged: 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.
• Option D: Demand for the original good will become perfectly inelastic: This option is misleading. Perfectly inelastic demand means that the quantity demanded does not change regardless of price changes. However, in this scenario, the demand for the original good is likely to increase due to the price change of the substitute, indicating that demand is responsive to price changes, not perfectly inelastic.

Summary of Key Points:

• Substitute goods are products that can replace each other; an increase in the price of one leads to an increase in demand for the other.
• The law of demand states that as the price of a good increases, the quantity demanded typically decreases, but this does not apply when considering substitutes.
• A price increase in a substitute good makes the original good more attractive, leading to an increase in its demand.
• Understanding the relationship between substitute goods and demand is crucial for analyzing market behavior.

This thorough understanding of the relationship between substitute goods and demand will help you in various economic scenarios and questions related to consumer behavior.