Final answer:
If the price of good A increases and it is a substitute for good B, both the price and quantity of good B are expected to increase as consumers will shift their demand towards good B. In terms of the question's options, the correct answer would be d) P* increases, Q* increases.
Step-by-step explanation:
If good A and good B are substitutes in production, and there is an increase in the price of good A, the expected outcome is that the price (P*) and quantity (Q*) of good B will also increase. This is because an increase in the price of good A would make consumers substitute towards good B, increasing its demand. This higher demand for good B typically leads to a higher price as well as a greater quantity sold, assuming that supply can respond to the increased demand.
In terms of the question's options, the correct answer would be d) P* increases, Q* increases. When one substitute's price goes up, consumers shift their purchases to the other substitute, which in turn drives up its price and quantity if the market can sustain it.