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Author Question: An increase in the price of Product X leads to a decrease in demand for Product Y. The price ... (Read 275 times)

KimWrice

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on: Jun 30, 2018
An increase in the price of Product X leads to a decrease in demand for Product Y. The price increase also increases the demand for Product Z, a related good. Discuss the relationship between these products.

Question 2

Will MPC plus MPS always equal one? Explain why or why not.


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popopong

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Product X and Product Y: complements.
Product X and Product Z: substitutes.

Answer to Question 2

Yes, MPC plus MPS will always equal one. The reason is that there are only two things that an individual can do with income spend it or save it. As such, for each dollar of additional income, a certain percentage will be used for consumption and the remaining percentage will be devoted to saving.


KimWrice

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Reply #2 on: Jun 30, 2018
Thank you :)


popopong

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Reply #3 on: Jun 30, 2018
Happy to help you


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