Multiple choice help-yr 11 (1 Viewer)

[mrs_missile]

What would a decrease in the price of a substitute good for light bulbs cause
A. A contraction in demand for light bulbs
B. An increase in demand for might bulbs
C. An expansion of demand for light bulbs
D. A decrease in demand for light bulbs

Answer plus explanation please!

 

[Girls]

A

Because a substitute good is one that can replace the good entirely (i.e. Samsung Galaxy is a substitute for an iPhone - very similar functions but different good).
Increases and decreases in demand are only affected by ONE THING: price of the good/service.
Thus, the decrease in price of a substitute for light bulbs would cause a contraction in demand for the light bulbs, rather than a decrease. Think of it as the market for light bulbs still being there, but they have moved to the competitors, rather than not buying light bulbs at all.

 

[ebbygoo]

I have to disagree. The answer is B.

Using the above example, iPhone and Galaxy.
Substitute is similar good that can replace it, again, the iPhone can replace the galaxy, and vice versa.
Now, say we are Apple. Samsung decide to increase the price of the Galaxy; they are the substitute good.
What do you think would happen? The demand for the galaxy would decrease, according to the law of demand, as their price increased, and then also these consumers would come and buy the iPhone, as it is cheaper then the Galaxy, thus causing an increase in demand for the iPhone.
The reason it is an increase, and not an expansion is because the price of the iPhone HAS NOT CHANGED; it has been impacted by an external force, thus, the curve SHIFTS, and shift=increase.

 

[wagig]

The answer is D

 

[OzKo]

A

Because a substitute good is one that can replace the good entirely (i.e. Samsung Galaxy is a substitute for an iPhone - very similar functions but different good).
Increases and decreases in demand are only affected by ONE THING: price of the good/service.
Thus, the decrease in price of a substitute for light bulbs would cause a contraction in demand for the light bulbs, rather than a decrease. Think of it as the market for light bulbs still being there, but they have moved to the competitors, rather than not buying light bulbs at all.

Yep, I agree with this.

 

[ebbygoo]

Wait. I thought of it the wrong way. I totally agree with wagig, because it's a decrease in a competitor's item's price; not the item itself.
My explanation, however, still stands.

 

[OzKo]

Wait. I thought of it the wrong way. I totally agree with wagig, because it's a decrease in a competitor's item's price; not the item itself.
My explanation, however, still stands.

My bad, you're right about that.

Mixed up the two.

 

[Girls]

Yeah my bad, I also mixed up the two terms. I was thinking that a contraction was a leftward shift rather than a downward one.