Answer to Question #291331 in Microeconomics for Diana

Question

If good X is an input into Good Y and good Y is a substitute for good Z, what can we expect to happen to demand, price, quantity of Good Z if there is a decrease in the price of good X?

Answer 1

If there is a decrease in the price of good X, manufactures will buy more of it and use it to make more of good Y and sell it to the market. The high supply of good Y in the market will lead to decrease in its prices, hence more customers will buy good Y than its substitutes. As a result:

1. The demand of good Z which is the substitute for Y will decrease.
2. The quantity of good Z in the market will increase.
3. The suppliers of good Z will need to lower its prices to attract customers.