QUESTION 5 A and B are substitute goods, but A and C are complementary goods. If the cost of producing A decreases, then the demand for both B and C will decrease. both B and C will increase. B will increase and the demand for C will decrease. B will decrease and the demand for C will increase.

The correct answer is letter "D": B will decrease and the demand for C will increase.

Explanation:

Substitute goods are those whose quantity demanded are inversely proportional. It implies if the quantity demand for one product increases, the quantity demanded for its substitutes will decrease and vice versa.

Complementary goods' quantities demanded have a directly proportional direction. Thus, if the quantity demanded for one product increases, the quantity demanded for its complementary goods increase as well.

So, the cost of producing good A will bring its prices down causing the quantity demanded for A to increase -demand law. Substitute good B will see its quantity demanded dwindled while complementary good C will see its quantity demanded increased.

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