1. Goods x and y are perfect substitutes. When the market price of good x is $5/unit, firm F produces 500 units of x. When the price of y rises, 100 consumers of y shift to the consumption of good x. This causes industry analysts to believe that firm f has increased the quantity supplied of x by 100 units to meet the higher demand for it.
To arrive at this conclusion, the industry analysts are assuming that:
a. Good x is the only substitute of y available to them.
b. Each person will now buy more of x than they did prior to the increase in the price of y.
c. Good y is an inferior good.
d. The law of supply does not hold for good y.
e. The new buyers of good x will, on average, consume one unit each.
2. Goods x and y are perfect substitutes. When the market price of good x is $5/unit, firm F produces 500 units of x. When the price of y rises, 100 consumers of y shift to the consumption of good x. This causes industry analysts to believe that firm F will increase the quantity supplied of x by 100 units to match this increased demand.
This conclusion is flawed because:
a. It assumes that firm F does not export good x.
b. It assumes that the price of x will not increase in the near future.
c. It assumes that firm F does not export good x.
d. It assumes that firm F is the only producer of good x.
e. It assumes that the supply curve of x will shift to the right in response to the increased demand.
