Question

How will the equilibrium price (P*) and equilibrium quantity (Q*) of strawberry ice-cream be affected if the price of chocolate ice-cream (a substitute) increases?

Group of answer choices

P* will increase and Q* will increase.

P* will decrease and Q* will decrease.

P* will decrease and Q* will increase.

P* will increase and Q* will decrease.

Answer 1

In simple words substitutes are those good which can replace each other for example tea and coffee

Here also strawberry and chocolate ice creams are substitutes to each other

so when there is is increase in the price of chocolate ice cream then there will be less demand of chocolate ice cream

This will lead to increase in the strawberry ice cream demand

When the demand of strawberry ice cream increases then equilibrium price and equilibrium quantity will rise shown below in the graph