All of the following pairs of goods are substitutes except -We observe the price of soda decreases and the demand for iced tea decreases. -We observe the price of steak increases and the demand for chicken increases. -We observe the price of bicycles increases and the demand for helmets decreases. To find the answer to this question, we must first know that two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change. When the price of soda decreases the demand for iced tea decreases. These goods are substitutes because the demand for ice tea is moving in the same direction (decreasing) as the price of soda. Intuitively this makes sense because you’ll choose to drink one or the other with your meal – probably not both! When the price of steak increases the demand for chicken increases. Again, these goods are substitutes because the demand for chicken is moving in the same direction (increasing) as the price...
Extra materials, tips, and resources for the economics courses that I teach.