Suppose there are only two normal goods in the economy, X and Y. If price of good X increases, which would be the correct statement from below? (a) Demand for good X decreases and demand for Y indeterminate. (b) Demand for good X decreases and demand for Y decreases. (c) Demand for good X increases and demand for Y is indeterminate. (d) Demand for good X increases and demand for Y decreases.

According to the law of demand, for a normal good, an increase in price leads to a decrease in the quantity demanded. This is driven by the substitution effect, where consumers switch to relatively cheaper alternatives, and the income effect, where the reduction in real purchasing power further reduces demand for normal goods [1]. Regarding good Y, the impact depends on its relationship with good X. If X and Y are substitutes, an increase in the price of X will increase the demand for Y as consumers switch away from X [1]. Conversely, if they are complements, an increase in the price of X will decrease the demand for Y because they are consumed together [1]. Since the relationship between X and Y (substitutes or complements) is not specified, the change in demand for Y remains indeterminate [1].

Sources

1. [1] Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.3 Normal and Inferior Goods > p. 24