Question

Consider Figure 4-1.The current demand and

supply curves areD,and S₁,at which the equilib

rium price and quantity are P₁ and Q₁.If there isa

decrease in the price of an item that consumers

regard asasubstitute for this good,which curve

shifts,and in which direction does it shift?What

happens to the market clearing price and to the

equilibrium quantity?

Short answer

Demand shifts to left.

Step-by-step solution

Step1. Given information

The price of the substitute has decreased.

Step2. Explanation

Since the substitute has become cheaper, our good has become relatively expensive. Therefore, the demand curve will shift left.

This will lead to a fall in equilibrium price and quantity.