Final answer:
Potato chips and pretzels are substitute goods because an increase in the price of potato chips leads to a rise in the demand for pretzels, as consumers look for alternatives.
Step-by-step explanation:
If the price of potato chips rises and the demand for pretzels rises, then according to basic economic principles, potato chips and pretzels are considered substitute goods. This is because the increase in the price of one good (potato chips) appears to lead consumers to demand more of the other good (pretzels), suggesting that consumers may be substituting pretzels for potato chips due to the price change. It's a common consumer behavior to switch to a more affordable alternative when the price of a preferred product increases.
Similarly, as mentioned in the concept of normal goods, if a person's income were to increase or decrease, they are expected to purchase more or less of both goods, depending on their preferences and the utility derived from the goods. However, the question specified deals with the cross-price elasticity aspect, wherein the price change of one good affects the demand for another, indicating they are substitutes.