When Two Goods Are Substitutes,a Shock That Raises the Price

question 10

Multiple Choice

When two goods are substitutes,a shock that raises the price of one good causes the price of the other good to

• A) remain unchanged.
• B) decrease.
• C) increase.
• D) change in an unpredictable manner.

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Definitions:

Model

A formal statement of a theory, usually a mathematical statement of a presumed relationship between two or more variables.

Theory

A system of ideas intended to explain something, based on general principles independent of the thing to be explained, often used as a framework for scientific or philosophical understanding.

Economic Stability

A state in which financial markets and the economy are able to function efficiently and enduringly, free from extreme fluctuations.