What will be the shape of the demand curve for the substitute goods ?

Question

Accepted Answer

The correct option is 4:

The demand curve for substitute goods, when plotted against the price of the *other* good, exhibits a positive slope. When we discuss the demand relationship between two goods, the price of Good A and the quantity demanded of Good B are examined. Substitute goods are those that can be used in place of one another, like tea and coffee. The key characteristic of substitutes is that they have a positive cross-elasticity of demand. This means if the price of Good A (say, tea) increases, consumers will switch their demand to Good B (coffee), causing the demand for Good B to rise. Because the price of one good and the demand for its substitute move in the same direction (both up or both down), the resulting demand curve showing this relationship is upward-sloping, or positive sloped.

The incorrect option is 1: Parallel to x-axis.
A demand curve parallel to the x-axis represents perfectly elastic demand, meaning consumers will buy an infinite amount at a given price and nothing if the price rises even slightly. This shape describes a theoretical perfect competition market for a good, but it does not represent the relationship between the demand for one substitute and the price of the other.

The incorrect option is 2: Parallel to y-axis.
A demand curve parallel to the y-axis represents perfectly inelastic demand, meaning the quantity demanded remains constant regardless of price changes. This occurs typically for essential necessities where no substitutes exist, such as life-saving medicine, and is not applicable to the cross-demand relationship of substitutes.

The incorrect option is 3: Negative sloped.
A negative-sloped demand curve represents the normal relationship between a good's own price and its quantity demanded (the Law of Demand), or the cross-demand relationship between complementary goods. Since substitutes show a positive relationship between the price of one and the demand for the other, they do not have a negative slope.