alleryBetween a good and the price of its substitute, the relationship of demand to that price is best described as which of the following?
ARandom and unpredictable
BInverse or negative
CAlways exactly zero
DDirect or positive
Answer & Solution
Correct answer: D. Direct or positive
1. Substitutes satisfy the same want and can replace each other, such as tea and coffee.
2. If the price of coffee rises, buyers switch to tea, so demand for tea rises.
3. Thus the demand for a good moves in the same direction as the price of its substitute.
4. The relationship is therefore direct or positive.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.3_
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