Answer to Question #106770 in Microeconomics for Steve

Question

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect:
1) the price of steel to fall
2) the demand curve for steel to shift to the right
3) the demand curve for plastic to shift to the left
4) nothing to happen to steel because it is only a substitute for plastic
5) the demand curve for steel to shift to the left

Answer 1

Substitute goods – Also known as alternative goods: are goods that can be used in place of another to fulfill a particular purpose. In this case, if the price of plastic increases, manufacturers in a bid to maintain or lower production cost, will opt to use steel whose price is constant. Therefore, when the price of plastic goes up, people will prefer to use steel to make body panels.

Answer: 2 the demand curve for steel to shift to the right