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Hello
I am a bit confuse with the answer of the below question.Could you please help me?
Which one of the following is likely to lead to a fall in the price of good Q which is a normal good?
a) A rise in the price of good P, a sobstitute for good Q
b) A fall in the level of household incomes generally
c) A fall in the price of good T, a complement to good Q
d) A belief taht the price of good Q is likely to double in the next 3 months.The correct answer given is B
My answer was C
Being Q a complement of good T the fall in the price of good T leads to fall the price to good T
I took into consideration option B as well, however C made more sense to me. The reason is because I considered normal good as Necessary good where demand does not change if the level of the income of household falls. On the other hand, if the household income would increase, then the demand of the normal good raise, therefore the price raise.
Could you please help me to clarify the above question?
Thanks a lot
Gabbi
A: not right because if the substitute’s price rose, we could raise the price of Q
C: Not right because if the complement becomes cheaper demand for it (and Q) will increase, so we could raise the price of Q
D: Not right because if consumers think the price will rise in the future they will stockpile: demand will go up as can the price.B: Right. If we are all poorer, suppliers tend to price-cut to keep demand up.
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