If goods X and Y are substitutes in production, then a rise in the price of good X
A) increases the demand for good Y.
B) decreases the demand for good Y.
C) increases the supply of good Y.
D) decreases the supply of good Y.
E) might change the supply of Y; it depends on whether X and Y are also substitutes.
The correct answer and explanation is :
The correct answer is C) increases the supply of good Y.
Explanation:
In economics, goods X and Y are considered substitutes in production when a producer can switch between producing one good or the other using the same resources. For example, a farmer could produce either wheat (good X) or corn (good Y) on the same land, but not both simultaneously.
When the price of good X rises, the producer will find it more profitable to produce good X than good Y because the higher price of good X leads to higher revenue. However, because the resources (land, labor, capital) used to produce both goods X and Y are interchangeable, the producer may shift some of the resources away from producing good Y and toward producing more of good X.
This shift in resources can affect the supply of good Y. If the producer is now allocating more resources to good X, this means fewer resources are available to produce good Y, reducing the overall supply of good Y. However, in the context of substitute goods in production, this implies that producers might reduce the quantity of good Y supplied to the market while increasing the production of good X.
Furthermore, a rise in the price of good X makes it more attractive to increase its production. This increase in the production of good X would typically lead to a decrease in the production of good Y, since both goods share common production inputs. Therefore, the supply of good Y decreases, as the producer shifts their efforts toward producing more of good X.
In conclusion, a rise in the price of good X will encourage producers to reallocate resources, reducing the supply of good Y and making it more likely that producers will focus on increasing the supply of the higher-priced substitute good X. This is why the correct answer is C) increases the supply of good Y.