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Suppose that Xbox X and PS5 are substituted in demand. An increase in the supply of...

Suppose that Xbox X and PS5 are substituted in demand. An increase in the supply of Xbox X will raise the price of PS5. (5 points)

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Answer #1

Substitute goods are those goods that can be used in the place of another. If the price of one good increases, then demand for its substitute good is likely to rise. Therefore, substitute goods have a positive cross price elasticity of demand.

If Xbox and PS5 are substitute goods and there is an increase in supply of Xbox, then the supply curve of Xbox will shift rightward and the price of Xbox will fall. If there is no change in price of PS5 and price of Xbox falls due to increase in demand, it becomes comparitively cheaper than PS5 and thus the equilibrium quantity of Xbox increases.

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