Question

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are_________

Answer 1

Substitute goods.

Step-by-step explanation:

Last month sales of good Y = 50 units

With higher prices,

This month sales of good Y = 40 units

So, there is a fall in the sales of good Y with higher prices.

At the same time,

Sales of good X increases from 20 units to 40 units, even at the same price level.

Hence,

Good X and Good Y are substitute goods. This is because of the positive cross price elasticity of demand. This means that as the price of good Y increases then as a result the quantity demanded for good X increases. This indicates that there is a positive relationship between the price of good Y and the quantity demanded for good X.