ACCA Advanced Performance Management (APM) Practice Exam

Question: 1 / 400

What happens to the demand for substitute goods if their prices decrease?

Demand for substitute goods will increase

Demand for substitute goods will decrease

When the price of substitute goods decreases, the demand for those goods tends to rise. Substitute goods are products that can be used in place of one another; when one becomes cheaper, consumers are likely to buy more of that good instead of the higher-priced alternative.

As the price of substitute goods falls, consumers will opt for the less expensive option, resulting in decreased demand for the original good. This behavior is rooted in the fundamental principles of consumer choice and price elasticity of demand—people generally seek to maximize their utility while minimizing costs.

Therefore, when considering the relationship between the price of substitutes and the demand for a specific good, it becomes evident that a decrease in substitute prices would lead to a decrease in the demand for the original good in question.

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Demand remains unchanged

Demand for complementary goods will increase

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