Price Increase Impact on Normal Goods

This question analyzes how a price change for a normal good influences the demand for both that good and another potential normal good in the economy.

Effect on Demand for Good X

We are told that good \(X\) is a normal good. The relationship between a good's price and the quantity demanded is described by the Law of Demand.

• The Law of Demand: Generally, if the price of a good increases, and all other factors remain constant, the quantity demanded of that good will decrease.
• Applying to Good X: Given that the price of good \(X\) increases, the quantity demanded for \(X\) must decrease, following the Law of Demand.

Therefore, any statement suggesting the demand for good \(X\) increases due to a price rise is incorrect.

Effect on Demand for Good Y

Good \(Y\) is also identified as a normal good. Normal goods are characterized by an increase in demand as consumer income rises. However, the question does not specify how good \(X\) and good \(Y\) relate to each other in terms of consumption.

The demand for good \(Y\) could be affected by the price change of good \(X\) depending on their relationship:

• If \(X\) and \(Y\) are Substitutes: An increase in the price of \(X\) might cause consumers to shift consumption towards \(Y\), thus increasing the demand for \(Y\).
• If \(X\) and \(Y\) are Complements: An increase in the price of \(X\) might lead to a decrease in the consumption of \(X\), and consequently, a decrease in the demand for \(Y\) (as they are used together).
• If \(X\) and \(Y\) are Unrelated: The price change of \(X\) might have little to no effect on the demand for \(Y\).

Without knowing whether \(X\) and \(Y\) are substitutes, complements, or unrelated, we cannot determine the exact change in the demand for \(Y\). The information provided is insufficient to conclude a specific direction (increase or decrease) for \(Y\)'s demand.

Determining Demand Indeterminacy for Good Y

Since the relationship between the two normal goods (\(X\) and \(Y\)) isn't specified, the impact of \(X\)'s price increase on \(Y\)'s demand remains uncertain.

• Demand for good \(X\) decreases.
• Demand for good \(Y\) is indeterminate based on the provided information.

This leads to the conclusion that the demand for good \(X\) decreases, while the demand for good \(Y\) is indeterminate.